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Replacement cost basis

If finished goods are sold below cost, Raw material should be valued at replacement cost basis. What is the logic behind it?


Aman Mahajan

Aman Mahajan

CA Inter

18K+

09-Jan-21 08:21

9

Answers (3)

Best Answer

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?

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)


Suraj Lakhotia

Suraj Lakhotia

Admin

11-Jan-21 10:43

Replacement cost is the best available realizable value.


Suraj Lakhotia

Suraj Lakhotia

Admin

09-Jan-21 11:21

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?


Aman Mahajan

Aman Mahajan

CA Inter

18K+

09-Jan-21 18:56