Current replacement cost
Current replacement cost is the amount that would currently be required to acquire an equivalent asset or service capacity. It is a current input value, reflecting acquisition from the business’s perspective. It differs from historical cost, which reflects the original transaction, and from the amount obtainable by selling the existing asset. Replacement cost is useful terminology but is not the universal measurement rule for FA assets.
Worked example
A machine originally cost $20,000; an equivalent machine with comparable service capacity would now cost $26,000. The current replacement cost is $26,000.
Common mistake
Do not substitute replacement cost for inventory’s net realisable value or assume it equals fair value.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | F3 | Supporting | July 2027–August 2028 |
| ACCA | FA | Supporting | September 2026–June 2027 |
| ACCA | K1 | Supporting | July 2027–August 2028 |
| FIA | FFA | Supporting | September 2026–June 2027 |