MANAGEMENT

Detailed explanation-1: -Replacement cost is a term referring to the amount of money a business must currently spend to replace an essential asset like a real estate property, an investment security, a lien, or another item, with one of the same or higher value.

Detailed explanation-2: -Replacement value, on the other hand, is the cost of replacing your house. Speaking broadly, the replacement cost refers to the overall cost of replacing your home with the exact new home with the exact same location, area per square, dimensions of the house.

Detailed explanation-3: -Replacement Costs Example If a company bought a machine for $1, 000 five years ago, and the value of the asset today, less depreciation, is $300 dollars, then the book value of the asset is $300. However, the cost to replace that machine at current market prices may be $1, 500.

Detailed explanation-4: -Introduction. Replacement costs are the cash outlay that the business has to pay to replace an old asset at the existing market price. The price charged to replace the old asset with the new one having the same value is the replacement cost.