Talk:Historical cost

message: I find the article in its current form (version last restored by Nicolaas Smith) to be very poorly written.  It is not fit for its purpose, which I assume is to explain the basic concept and use of historical cost in accounting.  I hope some specific comments (directed mostly to Nicolaas Smith whom I perceive to be the author of specific phrases) about the start of the article will be helpful.
The current version starts as follows (words quoted exactly, but losing some formatting in order to quote here):
My specific comments:
*The first sentence might possibly be okay, it seems to be making a definition.  
*For wikipedia articles, it would be usual to put the term being defined into bold: Historical cost is the ...
*The second sentence seems to be shooting off, abruptly, into a tangent that does not need to be part of an introduction to historical cost.  The introduction should explain the concept first.
*The second sentence seems ungrammatical:  Essentially it says "When an item is never updated its real value is destroyed."  Never is, well, never.  To paraphrase, the sentence is saying that "When never happens (which it never does) then something happens", which does not make sense.  It should be reworded at least.
*The second sentence uses a new term, "historical cost item", which has not yet been defined.  It is too abrupt to start using that, first explain what a historical cost item is.
*It refers to money and retained income as being examples of "historical cost items".  I don't believe that those items necessarily are (or, equivalently, I don't believe that there is a definition of historical cost items that would make sense and would include both of these as examples).
**If by money, you mean cash, then that is not a historical cost item in GAAP accounting, or at least there is no difference between historical cost and market value for cash.  In market value terms, cash is valued exactly at its face value.
**Retained income is not necessarily a "historical cost item" either.  I understand that the accounting value of retained income will usually be affected by the use of historical cost in valuing assets.  It also will be affected by the use of market valuation in valuing other assets.  Retained income will also be affected by other methods at play such as lower-of-cost-or-market (which reflects write-downs of goods that are obsolete for example), it is not solely determined by historical cost.  
***Or consider a business which buys and sells goods during each accounting period, and deliberately sells out all of its goods before the accounting period end.  It has no inventory or other assets to record, it has only cash at period end.  It may have made a profit buying and selling during the period, hence it will have some earnings, and it will accumulate retained earnings.  It would be hard to see how you could say that its retained earnings is a "historical cost item", as its retained earnings are unaffected by the use of historical cost.  So in general you might say the amount of retained earning is often affected by use of historical cost, or something like that, but it is not useful to give it as an example of "historical cost item", and especially not in the second sentence.
*The second sentence seems to be false, or at least not always true, in the case of land for example.  I am sure you have to agree that under most GAAP accounting systems, land is valued at historical cost, so I assume it must be an example of a "historical cost item".  The sentence seems to want to say that the "real value" of a historical cost item (which by definition is not updated in asset value until disposed of) is destroyed at the rate of inflation.  For land, that is not true, if by "real value" you mean anything like market value.  The land value could rise greatly during inflation.  There's no reason to expect its real value would be "destroyed".
*When you refer to "When an item is never updated", I think you mean to say "For historical cost items (which by definition have accounting values that are not updated until disposed)..."
*When you refer to "real value", it is not clear what that term means.
*When you refer to "the rate of inflation or hyperinflation", it sounds as if you are refering to one general rate of inflation.  It would be incorrect to say that the values of all items change with the general rate rate of inflation.  Some items like gold go up during inflation in any reasonable view of what "real value" could mean.  The relative values of different items change differently.
*The third sentence, "Money cannot be updated," does not make sense.  What do you mean, cannot be updated?  I suppose you mean that cash is easily and correctly valued at its face value.  The cash value of cash is its face value.  But why say it here?  The article should be explaining what is the use of historical costs.  A negative example, when no positive examples have yet been introduced, is not helpful.
*The fourth sentence, "Retained income is currently (April 2008) not updated in low inflationary economies...." does not make sense on its own, and is not helpful for explaining what historical cost is to a general reader.
**It is rather awkward to say "currently (April 2008)".  
**I think you are refering to what current accounting standards are, perhaps the IAS standards.  However, the article does not need to comment on what are various accounting standards in different countries, in order to explain the basic use of historical cost in an accounting system.  Comments about what are current accounting standards, or how they differ across countries, or how they have changed over time, belong much later in the article, if at all.
*Sentence five, "Retained income is: The accumulated net income retained for reinvestment in a business, rather than being paid out in dividends to stockholders.[2]" is a definition that is not helpful in defining what is historical cost.  And, it is defining one term in terms of others that have not yet been defined.  I just don't see where this is going, in terms of explaining the historical cost principle.
*Sentence six: "One of the basic principles in accounting is: 'The Measuring Unit principle...." seems inappropriate.  Please explain the historical cost principle first, don't go off to explain or refer to something else already!
I could go on, but I think you get the gist of how I would review this article in its current form.  I hope these comments are helpful. doncram (talk) 07:44, 8 May 2008 (UTC)
replies: text: Thanks. I've reverted the tendentious edits. If you have time to edit and improve the article, would be much appreciated. There may be other points/text/cruft in there based primarily on Mr. Smith's obsession.--Gregalton (talk) 08:48, 8 May 2008 (UTC)
thread_title:  Historical cost, and writing 

message: I thint the main other version of the article, now restored by User:Gregalton, is much better and can be adapted further.  It is fit for the purpose of explaining historical cost, although it could be improved.  I'll try to comment similarly.  This version starts as follows (words copied exactly, paragraph formatting lost in order to quote succinctly: 
My specific comments:
*In general, this version of the article is okay, it reads like an encyclopedia article, it is written reasonably well.
*Sentence one is a brief definition.  This definition should be expanded upon in the article.  It could be improved.  It starts off "In historical cost accounting, historical cost is..."  I don't think that historical cost is limited to pure historical cost accounting arena.  For example, historical cost concept is relevant when a variation, lower-of-cost-or-market, is being used.  Historical cost means the same thing in that setting.  So, reword drop the "In historical cost accounting" preface.  Perhaps: "Historical cost is the original monetary value of an economic item (asset?), used in many accounting systems as the carrying value of an asset (of assets?) on the balance sheet."
*Sentence two goes off on depreciation affecting the carrying value.  If carrying value is used in the first sentence, then this works better, but otherwise you are introducing terms.
*Perhaps better:  "Historical cost does not generally reflect current market valuation.  For many assets such as land, the asset is carried on the balance sheet without change, at its historical cost, in most accounting systems, until the asset is disposed of.  For other assets such as specialized equipment which wears out, and for which market values are not readily available, the carrying value may be reduced each period by a depreciation charge.  This is still termed historical cost accounting, since the original base value is not updated, but rather the using up of the asset is reflected in accumulating depreciation that offsets its historical cost value.  Carrying values can also be revised by additional investment to make improvements.  The cost of improvements to an asset are added to its value on the books of the firm.  For other assets for which market values are readily available, accounting systems may require that assets be updated to the market price each accounting period (mark-to-market valuation)."
*I am not sure the above is that much better.  But i am trying to expand on historical cost, before introducing new topics, before going off into counter-examples.
*Hope this helps. doncram (talk) 10:40, 8 May 2008 (UTC)
replies: text: Thanks, and feel free to edit the article directly - Be bold!.--Gregalton (talk) 11:10, 8 May 2008 (UTC)
thread_title:  Comments on other version of article