How is amortised cost defined?

Amortised cost refers to the accounting method used to determine the value of a financial asset or liability at a specific point in time, considering its initial recognition, repayments made, and the accumulated amortisation of any premium or discount.

The correct answer captures this concept accurately: it defines amortised cost as the initial amount of a financial asset or liability minus any repayments that have been made and the cumulative amortisation. This means that over time, the recorded value reflects the actual cost of the asset or liability as it is being settled, rather than just its initial value or any fluctuating market prices.

The other options do not accurately describe amortised cost. The total value of a financial asset at maturity does not account for the amortisation process and may lead to a misrepresentation of value over time. The current market value of a financial liability reflects its fair value at that moment, rather than its amortised cost. Lastly, the value of an asset after accounting for depreciation refers to tangible assets rather than the specific context of financial assets and liabilities. Each of these alternatives misses the specific formulaic approach that amortised cost embodies, focusing instead on different aspects of asset valuation.