Which of the following statements is correct regarding a long-lived asset such as a building?

• A. A building is reported at its current market value on the balance sheet.
• B. A building is expensed immediately when purchased.
• C. A building is recorded at its historical cost and depreciated over its useful life.
• D. A building is not subject to depreciation.

Answer: (C)

Verified step by step guidance

1. Understand the concept of long-lived assets: Long-lived assets, such as buildings, are tangible assets that a company expects to use for more than one accounting period. These assets are not expensed immediately but are capitalized and depreciated over time.
2. Clarify the historical cost principle: According to the historical cost principle, long-lived assets are recorded on the balance sheet at their purchase price, including all costs necessary to bring the asset to its intended use (e.g., purchase price, transportation, installation).
3. Explain depreciation: Depreciation is the systematic allocation of the cost of a long-lived asset over its useful life. This process reflects the wear and tear or obsolescence of the asset over time. Buildings are typically subject to depreciation, except for land, which is not depreciated.
4. Evaluate the incorrect options: (1) A building is not reported at its current market value on the balance sheet because the historical cost principle is used. (2) A building is not expensed immediately when purchased; instead, it is capitalized and depreciated. (3) A building is subject to depreciation, contrary to the statement that it is not.
5. Conclude with the correct statement: The correct answer is that a building is recorded at its historical cost and depreciated over its useful life, as this aligns with accounting principles and the treatment of long-lived assets.