Undervaluation of asset replacement costs

Historical cost accounting is particularly inappropriate in hyperinflationary economies. Periodic revaluation of assets is allowed in some countries. This raises depreciation costs and lowers net income but reflects the current position of assets in the balance sheet.

Historical cost accounting continues to have almost universal support and application. Within the past decade, however, a wide disparity between historical costs and current replacement costs of plant, equipment and inventories has developed.

1. Inaccurate forecasting
2. Imperfect accounting

1. Undervaluation of community wealth
2. Lack of funding for infrastructure
3. Insurance industry collapse
4. Disparity between share prices and underlying asset values
5. Deteriorating physical infrastructure in cities

1. Failure to take account of externalities of systems

1. Valuing asset replacement costs
2. Undervaluing asset replacement costs
3. Establishing cost accounting

1. Undervaluation
2. Overvaluation
3. Inappropriateness
4. Devaluation
5. Costliness