The Cost Approach

Abstract

Under a cost-based approach a buyer will pay no more for an asset than the cost to obtain an asset of equal utility, whether by purchase or by construction, unless undue time, inconvenience, risk, or other factors are involved. The current value of an asset can be calculated according to two methods: replacement cost method, that is, the price that an entity would pay to replace an existing asset at current market prices with a similar asset offering equivalent utility, and reproduction cost method, that is, the cost of reproducing an asset or property with the same materials and specifications.