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Hi,
I am having little confusion on Current cost. As you mentioned in the lecture that this is the cost we are going to pay if we buy that asset from market. However, if we compare it with the value that comes out in result of revaluation, why there could be difference in revalued value and current cost. May be current current cost is 200K and the revalued value is 160K. How it can happen since the revalued amount is also calculated on market survey/research and the same procedure apply to calculate current cost. Can you help me clear this confusion please.
Hi,
Fair value is essentially the market price determined by level one, tow our three outputs, whereas current cost is the cost to replace the asset.
Although very similar think of the current cost being used when we have an asset that would need to be constructed for use as PPE (a complex/specialised piece of machinery), and the current cost being all the constituent parts that go into making the PPE itself (materials and labour).
Fair value is looking at where we can just buy the asset off the market for whatever the value is. So a building for example.
I’d not get too worried about it though. In the exam you would be given the revalued amount to be used.
Thanks
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