Which statement correctly describes fair value in relation to historical cost?

• A. Historical cost is the value it can be traded at in the open market
• B. Historical cost is the replacement cost
• C. Fair value is the purchase price minus depreciation
• D. Fair value is the value it can be traded at in the open market

Answer: (D)

Fair value is the price at which an asset could be bought or sold in an orderly transaction in the open market at the measurement date. That captures the idea that fair value reflects current market conditions, not what was paid in the past. In contrast, historical cost is simply the original amount paid to acquire the asset, not what it could fetch today.

So the statement that fair value is the value it can be traded at in the open market matches the concept, while the other descriptions mix up terms: historical cost is not replacement cost, and purchase price minus depreciation describes net book value, not fair value.