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Replacement cost basis
Accountancy
If finished goods are sold below cost, Raw material should be valued at replacement cost basis. What is the logic behind it?
Answers (3)
Best Answer
Thread Starter
Aman MahajanDidnâ??t get that. Replacement cost is the amount at which the business can ACQUIRE a similar asset. Realisable value is the amount at which it can SELL the asset. How is replacement cost equal to best realisable value?
Generally a company does not sell raw materials. So as an alternative replacement cost is used. Which is the best available evidence of realisable value. (Assuming that the company could sell the asset at the price it would currently pay to buy)
CA Suraj Lakhotia Admin
Replacement cost is the best available realizable value.
Didnâ??t get that. Replacement cost is the amount at which the business can ACQUIRE a similar asset. Realisable value is the amount at which it can SELL the asset. How is replacement cost equal to best realisable value?
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