Replacement Cost: Member of the Family, Welcome Guest, or Intruder?

Abstract Serious consideration should be given to developing an operational substitute for historical cost-revenue realization. For all its certainty at the data-gathering level, conventional accounting has glaring weaknesses. The accountant is continually faced with problems of inventory valuation and long-lived-asset valuation that seem no less difficult than would be the problem of finding individual replacement costs. Accountants complain of the non-uniformity of inventory valuation methods. But a proper selection of a method requires a look toward the future toward that stream of net receipts. For assets owe their value to an ability to generate such a stream. Any attempt by accountants to impose one inventory method on all firms would create artificialities, because such a solution would ignore the differences in the time-shapes of future net receipts streams of different companies. A refurbishing more fundamental than a mere narrowing of inventory-valuation methods is needed. Introduction of replacement cost may not be the answer, but it is a candidates Conventional accounting should continue to be studied for possible improvements within the existing framework.