How to determine replacement cost
Video: ACV vs. Replacement Cost and How insurance calculates the value of your car, house, atv, motorcycle 2024, July
Depreciation of equipment, buildings entails the recalculation of the initial cost. Fixed assets acquired at different times are reflected differently on the balance sheet of the enterprise. In the process of use, fixed assets are subject to revaluation in order to identify their replacement cost.
Instruction manual
1
Make a list of fixed assets in need of revaluation at your enterprise. Fixed assets include: buildings, structures, production equipment, machinery, that is, all the funds that make up the physical capital of the enterprise.
2
Use one of the two methods of revaluation of fixed assets. Determine the replacement value by indexing the historical cost based on the amount of depreciation. To do this, find out the initial cost of fixed assets. It consists of the price paid upon purchase, as well as transportation and other expenses required for the commissioning of fixed assets. All costs incurred during installation, manufacturing of fixed assets are taken into account when determining the initial cost. However, do not include value added tax in this indicator. Also, do not include general expenses and similar expenses in the initial cost unless they are directly related to the acquisition of fixed assets.
3
When the initial cost is calculated and the revaluation index is known, calculate the replacement cost using the formula below:
Fv = Fp * Nper, where
Fv - replacement cost, expressed in rubles, Фп - initial cost, expressed in rubles, and
Nper - revaluation rate.
note
The replacement cost after revaluation of fixed assets is called historical cost.
Useful advice
The calculation of replacement cost is not required for the organization. This procedure can be repeated at the enterprise no more than 1 time per year, where January 1 is taken as the beginning of the year. Each company in its accounting policy has the right to independently compile a list of fixed assets in need of recounting replacement cost for a certain period of time.
- Revaluation of fixed assets
- replacement cost of the building
- Replacement cost is the cost of similar
