What is Current Cost?

Current cost is the cost that would be required to replace an asset in the current period. This derivation would include the cost of manufacturing a product with the work methods, materials, and specifications currently in use. The concept is used to generate financial statements that are comparable across multiple reporting periods.

Current Cost vs. Historical Cost

Historical cost is the original cost incurred to acquire an asset, while current cost is the cost that would be required to replace it right now. Historical cost is usually stated in an organization’s financial statements, because it is easy to identify this amount. However, historical cost may diverge substantially from an asset’s current cost (which is based on current market conditions). For example, a business acquired its headquarters building for $5 million ten years ago, but could not replace it for less than $8 million today, due to increased construction costs and the imposition of much more restrictive building codes than had been the case ten years ago.