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Business Definition for: replacement cost
Dictionary of Accounting Terms
replacement cost

  1. current cost to replace the service potential of an existing asset. Emphasis is placed on obtaining an asset with identical future service capabilities.
  2. current cost to replace property in a particular geographic area.

Dictionary of Finance and Investment Terms
replacement cost

cost to replace an asset with another of similar utility at today's prices. Also called current cost and replacement value.

See also book value , replacement cost insurance
Dictionary of Insurance Terms
replacement cost
See also replacement cost less physical depreciation and obsolescence
Dictionary of Real Estate Terms
replacement cost

the cost of erecting a building to replace or serve the functions of a previous structure.

Example: Abel wishes to insure a building against accidental destruction. The policy should be written so that in the event of destruction of the building, Abel may replace it with a structure that serves an identical function. Therefore, Abel should insure the building in an amount equal to its replacement cost, which is likely to be greater than its market value .

See also reproduction cost
Dictionary of Business Terms
replacement cost

cost of erecting a building to serve the functions of a previous structure; cost of replacing lost or stolen personal property. Compare reproduction cost .

Related Terms:
book value

  1. net amount shown for an asset on the balance sheet. It equals the gross cost less the related valuation account. For example, the book value of an auto is its initial cost less the accumulated depreciation. Since book value is based on historical cost, it will differ from market value. Book value is a going-concern value.
  2. carrying value of a liability equal to its face value less unamortized discount.

replacement cost insurance

property and casualty insurance that replaces damaged property. Replacement cost contents insurance pays the dollar amount needed to replace damaged personal property with items of like kind and quality, without deducting for depreciation. Replacement cost dwelling insurance pays the policyholder the cost of replacing the damaged property without deduction for depreciation, but limited by the maximum dollar amount indicated on the declarations page of the policy.

replacement cost less physical depreciation and obsolescence

sum it takes to replace an insured's damaged or destroyed property with one of like kind and quality, equivalent to the actual cash value, minus physical depreciation (fair wear and tear) and obsolescence. The objective is to place the insured in the same financial position after a loss as prior to it; the insured should not profit or lose by incurring a loss.

reproduction cost

current cost to replace an asset with an identical asset. Typically, there is an allowance for depreciation.

Referring Terms:
current cost
replacement cost insurance
reproduction cost
Copyright © 2005, 2000, 1995, 1987 by Barron's Educational Series, Inc., Reprinted by arrangement with Publisher.
 Copyright © 2006, 2003, 1998, 1995, 1991, 1987, 1985 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
 Copyright © 2000, 1995, 1991, 1987 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
 Copyright © 2004, 2000, 1997, 1993, 1987, 1984 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
 Copyright © 2007, 2000, 1997, 1987, by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
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