What is the proper basis for initially recording a piece of equipment on company books?

The proper basis for initially recording a piece of equipment on company books is historical cost. This accounting principle reflects the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire the asset at the time of purchase. Historical cost remains the standard for asset valuation under generally accepted accounting principles (GAAP) because it provides a verifiable and objective measure.

Historical cost ensures that all expenses related to acquiring the equipment, including purchase price, taxes, and installation costs, are included. This approach avoids fluctuations from market value or appraised values, promoting consistency and reliability in financial reporting. Recording equipment at historical cost also facilitates comparability over time, as it reflects the actual investment made rather than potentially volatile market assessments.

Using current market value, appraised value, or estimated replacement value could lead to inconsistencies and subjectivity, as these measures can change over time and may not reflect the actual transaction costs associated with acquiring the asset. Thus, historical cost remains the accepted method for initial recording of assets like equipment.