ABSTRACT
Is there any one type of business value which may appropriately be used in the measurement of all phases of business capital and income? This question is often raised by the business man, who is confused by the numerous value bases—original cost, sale-price, replacement-cost—which underlie industrial balance sheets and statements of operations. In the opinion of the writer, replacement-cost is the basic value which properly expresses business capital and income. It is not always easily determined; at times can only be approximated. But even the arguments in favor of other bases of valuation are predicated on the assumption that they are very near to replacement-cost. The replacement-cost of an asset is the estimated expenditure necessary to secure another similar in nature and equivalent in economic value. It frequently is more or less than original cost; usually it varies from sale-price, which is the amount realizable through disposal. The importance of replacement-cost in the balance sheet and the statements of business operations will be illustrated with respect to the following accounting entities: merchandise inventories, fixed assets, trading profit, fixed charges (particularly depreciation).
