What is Replacement Value?

The replacement value refers to all the expenditures required to repurchase and build fixed assets under the current production conditions. When the enterprise takes over, trades in surplus, and accepts donated fixed assets, and cannot determine its original price, it can be valued at the replacement full value. So the replacement value is also called the replacement full value. ^[1]

Replacement value

Right!

The replacement value refers to all the expenditures required to repurchase and build fixed assets under the current production conditions. When the enterprise takes over, trades in surplus, and accepts donated fixed assets, and cannot determine its original price, it can be valued at the replacement full value. So the replacement value is also called the replacement full value. ^[1]

Now required to repurchase the same assets or remanufactured the same products

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

(1) The replacement value indicates the amount that the 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 current replacement cost and current income ratio, asset holding profit and loss can be distinguished from operating profit and loss, providing meaningful accounting information.

(3) If such assets are to be obtained continuously, the current replacement cost represents the value of the assets to the enterprise.

(4) The total of the current replacement costs of various assets is more meaningful than the total of the historical costs incurred in different periods.

The main disadvantage of the replacement value attribute is the lack of objectivity in determining the replacement value. As the value of the goods sold in the market on the date of measuring the replacement value may not be exactly the same, and the sales conditions may not be the same, it is inevitable that there will be some subjectivity in the determination of the replacement value factor. Furthermore, on the day when the replacement cost is measured, due to technical progress and other reasons, some assets of the enterprise may also find it difficult to find the same or similar assets in the market. The replacement value of these assets can only be estimated and replaced The determination of value is therefore more subjective.