Historical Cost Example

Let's say for example that you purchased a POS (Point of Sale) machine for $10,000 in 2001. Software, as we all know can be easily backed up and copied. If we keep the same operating system, chances are the software will not become obsolete. Therefore, the software should not lose any value. The hardware may change, but the software can still run, provided the copy of Windows did not come with the machine, thereby forcing you to upgrade. The added value to the software may include the scanned barcodes and the hardware and miscellaneous software configuration. The POS companies charge a great deal of money for installation and training, so we cannot fault businesses for trying to save money. Therefore, there are many businesses that choose to start from a clean slate and scan each item individually by themselves. They would also prefer to set up the hardware and software by themselves just to save some money. However, the process can take months, especially without proper training of the software. That is where the backup files of a POS come in handy. That backup file should theoretically add three months of value to the POS machine. Historical cost, the cost typically reported in the accounting of a company, will report the value of the POS machine to be $10,000, the cost they initially paid for it. When purchasing a business, one must look for this added value.