Replacement Value Example

The following example demonstrates the two methods for calculating Replacement Value.

Company X placed an asset in service on 6/1/2020. The asset has an Acquired Value of $10,000. The percentage increase for determining the asset's Replacement Value is 3% for 2021 and 3.2% for 2022.

For 2020, the year in which the asset is placed in service, Replacement Value is equal to the asset's Acquired Value, $10,000.

Method 1: Apply index to Acquired Value

For 2021:

	$10,000	Acquired Value
times	1.03	2021 RV Index
	$10,300	2021 Replacement Value

 

For 2022:

	$10,000	Acquired Value
times	1.032	2022 RV Index
	$10,320	2022 Replacement Value

 

Method 2: Apply index to prior year Replacement Value

For 2021:

	$10,000	Acquired Value
times	1.03	2021 RV Index
	$10,300	2021 Replacement Value

 

For 2022*:

	$10,300	2021 Replacement Value
times	1.032	2022 RV Index
	$10,629.60	2022 Replacement Value

 

*The difference between the two methods for calculating Replacement Value first appears in the second year, where the starting point is the prior year's calculated Replacement Value.