The original cost (acquisition price and other necessary costs) of an asset (and broadly any element on an entity’s financials) at the time of acquisition (at initial recognition). The historical cost of an asset does not only correspond to the market price at the time of purchase, but it also accounts for any costs that an entity incurs in the acquisition process.

However, historical cost might be relevant only at the time of initial recognition. Specific categories of assets are valued, later on and consequently, using different measures of value. For example, PP&E, investment property, biological assets, and certain financial instruments are typically reported according to fair value (reflecting market value and other relevant considerations).

Furthermore, despite its nature as a static or consistent measure of value, historical cost may get updated too, though less frequently than fair value. The most common case is where physical assets (property, plant and equipment, PPE) are depreciated over their useful life. Depreciation of physical assets involves a systematic reduction in their cost to reflect  consumption (physical wear and tear) during their economic life.