Abstract:
Two alternative measurement bases that have appeared in accounting standards,
Deprival Value (sometimes called Value to the Business) and Fair Value, are
explained and compared. They are then reconciled by making the following three
adjustments to their conventional definitions.
(1) In the case of Deprival Value, situations in which net realisable value
exceeds replacement cost imply that there is a profitable redevelopment or
redeployment opportunity, so that net realisable value is regarded as the
appropriate measure of Deprival Value.
(2) In the case of Fair Value, transactions costs (including installation and
removal costs) are added to acquisition values and deducted from disposal
values.
(3) In the case of Fair Value, it is assumed that net realisable value represents
the “highest and best use”, except when it is exceeded by both replacement
cost and value in use. In the latter case, “highest and best use” (and
therefore Fair Value) is inferred by assuming profitmaximising
behaviour
by the owner.
It is suggested that the resulting synthesis represents a method of current valuation
which is consistent with the objective of measuring the asset in terms of the economic
opportunities that are available to its current owner in the condition and location in
which it is currently to be found.
