Explain the treatment of current replacement cost while calculating national income.

Current replacement cost is the cost of replacing an existing asset by a new one at today's or current price. Look the concept is quite simple. Over the period of time, our existing assets wear out or become obsolete with the advancement of technology, hence, same is to be replaced by a new asset. Now, when the new asset is acquired, it is done at today's market price or current price. This current price/cost which is required to acquire the new asset in order to replace the old asset, it is what we mean by current replacement cost.  

In simple words, current replacement cost is 'depreciation' or 'consumption of fixed capital'. The treatment of current replacement cost is not specific to the expenditure method. It is the same as we treat it in case of value added method and income method. This is to say that whenever, we want to migrate from 'Gross' to 'Net', we deduct current replacement cost; on the contrast, whenever, we want to move the other way round, i.e. from 'Net' to 'Gross' we add current replacement cost.
Let me know, if the concept is still ambigous. 

  • 7
in expenditure method
  • 0
in expenditure method we added it in the capital formation
  • 3
What are you looking for?