What is the meaning of replacement value?
The term replacement cost or replacement value refers to the amount that an entity would have to pay to replace an asset at the present time, according to its current worth. In the insurance industry, "replacement cost" or "replacement cost value" is one of several methods of determining the value of an insured item.
What does Replacement mean in accounting?
In accounting, the replacement costs definition is the current market price a company would have to pay to replace an existing asset. This is in contrast to book value. Book value is the historic purchase price of the asset, less accumulated depreciation.
What is the formula of replacement value?
It is the total asset value less cost-free debt (Here, creditors) which in our example will be $ 5400 Mio less $ 1200 Mio (creditors) = $ 4200 Mio.
What is meant by replacement method?
Definition. 1. The replacement cost method involves arriving at an asset's value by reference to the present-day cost, in an arms-length transaction, of replacing that asset with a similar asset in a similar condition 1 (plus, if appropriate, payment of any taxes due).
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