What Is Replacement Cost Accounting?

The replacement cost, also known as the current cost, refers to the amount of cash or cash equivalents required to reacquire the same asset in accordance with current market conditions. In the case of replacement cost measurement, assets are measured at the amount of cash or cash equivalents required to purchase the same or similar assets. Liabilities are measured based on the amount of cash or cash equivalents required to pay the debt now. ^[1]

Replacement cost

Replacement cost refers to the measurement of assets based on the amount of cash or cash equivalents that need to be paid for the same or similar assets now; liabilities are measured based on the amount of cash or cash equivalents that need to be paid to pay the liability now.

Replacement cost is a

Replacement cost is divided into

Compared with the original cost attribute, the replacement cost has the following advantages:

(1) Replacement cost represents the amount that an enterprise must pay to obtain the asset or labor service. Objectively, it is the best measure of the current input value. It is meaningful to calculate the profit by matching it with the current income.

(2) Based on the ratio of current replacement cost to current income,

The calculation formula is: the value of the asset being evaluated = replacement cost-accumulated accrued loss = replacement cost-tangible loss-intangible loss (functional loss + economic loss)