How To Calculate Replacement Cost

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How To Calculate Replacement Cost
How To Calculate Replacement Cost

Video: How To Calculate Replacement Cost

Video: How To Calculate Replacement Cost
Video: Managerial Accounting - Equipment Replacement 2024, March
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Depreciation of equipment and buildings entails a recalculation of the original cost. Different times of acquisition and commissioning of fixed assets are reflected in different ways in the balance sheet of the enterprise. In the process of use, fixed assets are subject to revaluation in order to identify their replacement cost.

How to calculate replacement cost
How to calculate replacement cost

Instructions

Step 1

Make a list of fixed assets in need of revaluation in your enterprise. Fixed assets include: buildings, structures, production equipment, machines, that is, all assets that make up the physical capital of the enterprise.

Step 2

Use one of two methods for revaluing fixed assets. Determine the replacement cost by indexing the original cost against the depreciation amount. To do this, find out the initial cost of fixed assets. It consists of the price paid at the time of purchase, as well as transportation and other costs required for the commissioning of fixed assets. All costs incurred during the installation, manufacturing of fixed assets are taken into account when determining the initial cost. However, do not include value added tax in this figure. Also, do not include general and similar expenses in the initial cost, if they are not directly related to the acquisition of fixed assets.

Step 3

When the initial cost has been calculated and the revaluation index is known, calculate the replacement cost using the formula below: Фв = Фп * Кper, where Фв is the replacement cost, expressed in rubles, Фп is the original cost, expressed in rubles, and Uper is the revaluation factor.

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