By EasyHow

How to determine replacement cost

Depreciation of equipment, buildings entails a recalculation of the original cost. Fixed assets purchased at different times, have different impacts on the balance sheet. In the process of using fixed assets are subject to revaluation with the aim of identifying their replacement cost.

Instruction

Make a list of assets requiring revaluation on your enterprise. Fixed assets include: buildings, structures, production equipment, machines and all the tools that make up the physical capital of the enterprise.

Use one of two methods of revaluation of fixed assets. Determine the replacement cost by indexing the original cost taking into account depreciation. To do this, find out the original value of fixed assets. It consists of the price paid at purchase and transport and other costs required for the commissioning of fixed assets. All the costs incurred while installing, the production of fixed assets are taken into account at definition of initial cost. However, the value added tax is not included in this figure. Also in the initial cost do not include General and similar costs if they are not directly related to the acquisition of fixed assets.

When the initial counted value, and the revaluation index is known, calculate the replacement value according to the formula given below:

FV = FP * Nper, where
FV – replacement value, expressed in rubles
Op – the initial cost is expressed in rubles, and
Nper – the revaluation coefficient.

Note

The replacement cost after revaluation of fixed assets is called an initial value.

Useful advice

The calculation of replacement cost is not required for organizations. This procedure can be repeated at the enterprise not more often than 1 time per year, where the beginning of the year taken 1 Jan. Each company in its accounting policy has the right to make their own list of assets that need in terms of replacement cost for a certain period of time.