Reference Entry

replacement cost

Edited by John Black, Nigar Hashimzade and Gareth Myles

in A Dictionary of Economics

Fourth edition

Published in print January 2012 | ISBN: 9780199696321
Published online May 2013 | e-ISBN: 9780191759130
replacement cost

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The system of accounting in which the assets of firms are valued and their depreciation allowances are calculated using the costs of replacing their buildings and equipment. Where buildings and equipment can be replaced exactly, this might seem an ideal accounting method. However, particularly in the case of equipment, owing to technical progress, exact replacements are frequently not available, and would not be worth installing even if they were. In such cases calculating the cost of appropriate replacements for equipment is very much a matter of judgement....

Reference Entry.  89 words. 

Subjects: Economics

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