Calculator · Cost approach

Cost approach calculator

Value an intangible asset, plant and equipment, or a building at its depreciated replacement cost: cost new less physical deterioration and functional and economic obsolescence, with land at market value for property (IVS 103).

How the cost approach works

Under IVS 103 the cost approach gives the value of an asset as the cost a market participant would incur to replace it with one of equal utility, less depreciation and obsolescence. The cost new includes everything needed to bring the asset into use: installation and freight for equipment; professional fees, developer's profit and finance during construction for buildings and internally developed intangibles.

Deduct physical deterioration (for tangible assets), then functional and economic obsolescence. For property, add the land at market value: land is not depreciated. The result is generally the most a buyer would pay for the asset in its current use; where the business cannot earn a fair return on its assets, test economic obsolescence against the income approach.

Related: Adjusted net assets · MPEEM · Technology RFR · Model notes

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