The use of replacement cost of assets for purposes of calculating return on investment (ROI) has the advantage of:
A) Historical accuracy.
B) Being a relevant measure of the level of investment in a continuing business.
C) Objectivity.
D) Consistency with generally accepted accounting principles (GAAP).
E) Avoiding the need for developing estimates of current cost.

Question

Quizplus · Accepted Answer

The use of replacement cost of assets provides a relevant measure of the level of investment in a continuing business because it considers the current cost of replacing the assets. This is important for determining the ROI since it reflects the potential return on the investment going forward. Historical accuracy (A), objectivity (C), and consistency with GAAP (D) are important but not necessarily advantages specific to the use of replacement cost. Avoiding the need for developing estimates of current cost (E) is not accurate since the replacement cost is itself an estimate.

The Use of Replacement Cost of Assets for Purposes of Calculating