A Comparative Analysis of Selected Asset Valuation Methods: A Defense of the Current Replacement Cost Method

Date of Submission


Document Type


Degree Name

Master of Science in Accounting




Abbas Nadimfard


Cost accounting--Methodology, Current value accounting

Call No. at the Univ. of New Haven Library

AS 36 .N29 Acc. 1982 no.13


This thesis begins with an illustrated discussion of the concepts and theory underlying three different asset valuation methods: 1) historical cost,, 2) general price-level adjusted historical cost and 3) current replacement cost.

The focus of this thesis then turns to a comparative analysis of the three asset valuation methods mentioned above. The conclusions of the comparative analysis lay the foundation for the defense of the current replacement cost method. The primary criteria used in the comparative analysis are: relevance, usefulness, objectivity and specificity.

Following the comparative analysis, the author devotes a chapter to various sub-topics related to the current replacement cost method, thus giving the reader a broader understanding of the method being defended.

The concluding chapter sums up the defense with a presentation of' a model based on empirical and interpolated financial data from the Melville Corporation and one of its major divisions, Consumer Value Stores.

The primary motivation for developing and writing this thesis is to shed further light on the general topic of asset valuation during a period of rising prices.

The analysis throughout the thesis stresses primarily on retail inventories, because in the author's opinion it has not received as much attention as depreciable assets, in current accounting literature.

Income measurement was highlighted throughout the thesis for two primary reasons: 1) the inflation-oriented methods reveal the eroding effect on earnings due to rising entry prices and 2) asset valuation and income measurement are inherently interrelated accounting measurements.

The three most significant conclusions of this thesis include: 1) only the current replacement cost method can provide depreciable asset or inventory valuations that reflect the economic realities of the individual firm; 2) general price-level accounting provides uniform and supposedly comparable measurements of inflation in the economy but distorts asset valuation with irrelevant data and 3) the historical cost method completely ignores the eroding effect of inflation on gross margin and buries inventory cost savings in reported operating income.