Replacement Cost

AAA

DEFINITION of 'Replacement Cost'

The cost to replace the assets of a company or a property of the same or equal value. The replacement cost asset of a company could be a building, stocks, accounts receivable or liens. This cost can change depending on changes in market value.


Also referred to as the price that will have to be paid to replace an existing asset with a similar asset.

INVESTOPEDIA EXPLAINS 'Replacement Cost'

Replacement cost insurance can be purchased to protect and cover a company or individual from this type of cost. This insurance pays the full amount needed to replace the asset or property. The gradual reduction of the asset value or depreciation is not taken into account for insurance purposes.

RELATED TERMS
  1. Market Value

    The price an asset would fetch in the marketplace. Market value ...
  2. Inventory Accounting

    The body of accounting that deals with valuing and accounting ...
  3. Net Realizable Value - NRV

    The value of an asset that can be realized by a company or entity ...
  4. Actual Cash Value

    The amount equal to the replacement cost minus depreciation of ...
  5. Q Ratio (Tobin's Q Ratio)

    A ratio devised by James Tobin of Yale University, Nobel laureate ...
  6. Asset

    1. A resource with economic value that an individual, corporation ...
RELATED FAQS
  1. Why was the practice of depreciating assets for accounting purposes created?

    Modern uses of depreciation arose at about the same time that the modern corporation was taking shape. The Industrial Revolution ... Read Full Answer >>
  2. What are the generally accepted accounting principles for inventory reserves?

    As with most matters related to generally accepted accounting principles (GAAP), accountants assigned with the task of applying ... Read Full Answer >>
  3. How are contingent liabilities reflected on a balance sheet

    Contingent liabilities need to pass two thresholds before they can be reported in the financial statements. First, it must ... Read Full Answer >>
  4. How do businesses determine if an asset may be impaired?

    In the United States, assets are considered impaired when net carrying value (book value) exceeds expected future cash flows. ... Read Full Answer >>
  5. How can I set up an accrual accounting system for a small business?

    First, determine whether accrual accounting makes the most sense practically and financially. If the small business is also ... Read Full Answer >>
  6. Why is work in progress (WIP) considered a current asset in accounting?

    Accountants consider work in progress (WIP) to be a current asset because it is a type of inventory asset. Accountants consider ... Read Full Answer >>
Related Articles
  1. Entrepreneurship

    Will Insurance Keep Your Business Safe?

    Skilled employees are key to a successful business. Find out how to avoid a financial setback if they leave.
  2. Fundamental Analysis

    Inventory Valuation For Investors: FIFO And LIFO

    We go over these methods of calculating this component of the balance sheet, and how the choice affects the bottom line.
  3. Options & Futures

    Insurance 101 For Renters

    If it's time for you to leave the nest, find out how to protect your new home from disaster.
  4. Economics

    What is a Management Buyout?

    A management buyout, or MBO, is a transaction where a company's management team purchases the assets and operations of the business they manage.
  5. Economics

    Explaining Cash On Delivery

    Cash on delivery, also referred to as COD, is a method of shipping goods to buyers who do not have credit terms with the seller.
  6. Fundamental Analysis

    What is Quantitative Analysis?

    Quantitative analysis refers to the use of mathematical computations to analyze markets and investments.
  7. Economics

    Explaining Residual Value

    Residual value is a measurement of how much a fixed asset is worth at the end of its lease, or at the end of its useful life.
  8. Fundamental Analysis

    Understanding the Simple Random Sample

    A simple random sample is a subset of a statistical population in which each member of the subset has an equal probability of being chosen.
  9. Fundamental Analysis

    Why Last In First Out Is Banned Under IFRS

    We explain why Last-In-First-Out is banned under IFRS
  10. Economics

    Understanding Carrying Value

    Carrying value is the value of an asset as listed on a company’s balance sheet. Carrying value is the same as book value.

You May Also Like

Hot Definitions
  1. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  2. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  5. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  6. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center