Table of Contents
- 1 What is underlying replacement cost profit?
- 2 What is an underlying profit?
- 3 How do you calculate underlying profit?
- 4 What is an underlying basis?
- 5 How do you calculate replacement cost of fixed assets?
- 6 What means replacement cost?
- 7 Should replacement cost profit be the same as LIFO profit?
- 8 Why do oil companies disclose replacement cost profit?
What is underlying replacement cost profit?
The replacement cost profit or loss for the period is arrived at by excluding from profit or loss inventory holding gains and losses and their associated tax effect. Underlying replacement cost profit is replacement cost profit or loss adjusted for non-operating items and fair value accounting effects.
What is an underlying profit?
Underlying profit is the measure used internally to evaluate performance, to establish strategic goals and to allocate resources. In most years it is based on EBITDA (earnings before interest, tax, depreciation and amortisation).
How do you calculate replacement costs?
It is computed as the sum of future investment returns discounted at a certain rate of return expectation. read more of the asset, followed by its useful life.
What is replacement cost in accounting?
The replacement cost is an amount that a company pays to replace an essential asset that is priced at the same or equal value. Companies look at the net present value and depreciation costs when deciding which assets need to be replaced and whether the cost is worth the expense.
How do you calculate underlying profit?
This is calculated by subtracting all dollar costs from revenue, the same calculation used to determine how much income tax to pay. Often, companies will choose to supplement this figure with their own calculation. Underlying profit is designed to offer a more useful indicator of performance on a year-by-year basis.
What is an underlying basis?
adjective [ADJECTIVE noun] The underlying features of an object, event, or situation are not obvious, and it may be difficult to discover or reveal them.
What is underlying in accounting?
In finance, the underlying of a derivative is an asset, basket of assets, index, or even another derivative, such that the cash flows of the (former) derivative depend on the value of this underlying. An underlying may be a price or rate of an asset or liability but is not the asset or liability.
What is replacement basis?
Normally, expenditure which is allowed on replacement basis is the expenditure on the replacement of small items in terms of size and price.
How do you calculate replacement cost of fixed assets?
What is replacement of asset value?
- First, add together all maintenance-related costs performed on a specific asset over the course of a year.
- Next, multiply that number by 100.
- Finally, divide the product from the first two steps by the total cost to replace said asset.
What means replacement cost?
Replacement costs are the cash outlay that the business has to pay to replace an old asset at the existing market price. The price charged to replace the old asset with the new one having the same value is the replacement cost.
What is an example of replacement cost?
Replacement Costs Example If a company bought a machine for $1,000 five years ago, and the value of the asset today, less depreciation, is $300 dollars, then the book value of the asset is $300. However, the cost to replace that machine at current market prices may be $1,500.
What is replacement cost in economics?
Replacement cost. The use of replacement cost for valuing stock eliminates the effect of profits or losses made by carrying stocks.
Should replacement cost profit be the same as LIFO profit?
If inventory levels have not changed, then replacement cost profit should be the same as profit calculated using LIFO costs. If stock levels have changed LIFO based and replacement cost profits will be different. Unless price movements have been extreme or the change in stock levels very large the difference is unlikely to be material.
Why do oil companies disclose replacement cost profit?
Oil companies often disclose replacement cost profit. This is because the oil price is so volatile, they hold large stocks, and the amount stocked also varies significantly from one reporting period to period. If inventory levels have not changed, then replacement cost profit should be the same as profit calculated using LIFO costs.
How is replacement cost valued for stock?
The use of replacement cost for valuing stock eliminates the effect of profits or losses made by carrying stocks. Supplies are valued at current cost, which is usually the average price over the period. Replacement cost, FIFO, LIFO and average cost are all consistent with the accrual principle, but they differ in how the costs accrue.