What is an example of an asset that could be exempt from the cost principle?

The cost principle in accounting states that assets should be recorded at their original purchase price, also known as historical cost. However, certain assets may be exempt from this principle, specifically those that are actively traded in a market, such as marketable securities.

Marketable securities are financial instruments that can be quickly converted into cash at a reasonable price and are typically reported at fair value rather than at historical cost. This valuation aligns more closely with their current market conditions and reflects their liquidity and the ease of trading. This deviation from the cost principle is justified because marketable securities fluctuate in value based on market demand and other economic factors, making fair value reporting more relevant for decision-making purposes.

In contrast, physical inventory, accounts receivable, and plant and equipment generally retain their historical cost basis for financial reporting, as their value does not change as significantly or as frequently as that of marketable securities. Therefore, marking marketable securities at fair value distinguishes them from the other categories, making them an example of an asset exempt from the cost principle.