What is Replacement Cost Method?

Under this method the value of the company is the cost to incur for rebuilding the company under current condition. There are threes methods to calculate the value:

a) Replacement Cost Method:

Replacement Value = Quantity of the material, labor and expenses incurred * Prevailing price

b) Commodity Index Method:

Replacement Value = Original value * Index of price change

c) Functional Value Method

Replacement Value = Comparable asset’s value * Productivity of target asset / Productivity of comparable asset