Replacement Value Example

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

Organization X placed an asset in service on 6/1/2010. The asset has an Acquired Value of $10,000. The percentage increase for determining the asset's Replacement Value is 3% for 2011 and 3.2% for 2012.

For 2010, 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 2011:

	$10,000	Acquired Value
times	1.03	2011 RV Index
	$10,300	2011 Replacement Value

 

For 2012:

	$10,000	Acquired Value
times	1.032	2012 RV Index
	$10,320	2012 Replacement Value

Method 2: Apply index to prior year Replacement Value

For 2011:

	$10,000	Acquired Value
times	1.03	2011 RV Index
	$10,300	2011 Replacement Value

For 2012*:

	$10,300	2011 Replacement Value
times	1.032	2012 RV Index
	$10,629.60	2012 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.