Current cost
Current cost values an asset at its present replacement price rather than historical cost, giving divisional performance metrics a more realistic investment base that does not shrink artificially through depreciation.
Also known asreplacement cost
See it move
A side-by-side comparison holds operating profit constant at €90,000 and shows how the choice of valuation basis changes return on investment. Under net book value — historical cost less accumulated depreciation — the investment base is €300,000, producing an ROI of 30%; revaluing the same assets at their current replacement price raises the base to €750,000 and reduces ROI to 12%. The note explains that old, largely depreciated assets artificially inflate ROI under net book value, whereas current cost restores a more economically realistic denominator.
Check yourself
A division owns machinery purchased four years ago for €500,000. Accumulated depreciation is €200,000, giving a net book value of €300,000. An equivalent machine today would cost €480,000. For divisional performance measurement using the current-cost approach, which figure should serve as the investment base?