Current exit value and mixed values

Question

Edwards and Bell (1961) defined opportunity costs as

Answer 1

values that could currently be realised if assets were sold (without further processing) outside the firm at the best prices immediately obtainable

Answer 2

the proceeds after deducting these additional unavoidable expenses of disposal

Answer 3

Yr = D + (Re - Rs)

Yr is the exit value income

D is the distributions (less new capital inputs)

Re is the NRV of the assets at the end of the period

Rs is the NRV of the assets at the start of the period

Answer 4

It is common for businesses that broadly follow historical cost accounting principles to revalue some of their assets at intervals, sometimes then depreciating on the revalued figures, sometimes not.

Answer 5

Advantages

As a mixed value system it is more realistic and relevant than either RC or NRV. It values resources at RC if it is profitable to replace them and at the expected proceeds if they would not be replaced.

Disadvantages

It is more subjective than RC.
If the balance sheet is expressed in mixed values, what do the asset and capital employed totals mean? Can mixed values be validly added at all?
Firms are not in practice being continually deprived of their assets.

Answer 6

Level 1 - observable market prices, any adjustment are consistent with those that market participants can be expected to make.

Level 2 - accepted valuation models or techniques; all significant inputs are consistent with those which market participants can be expected to use.

Level 3 - current cost (i.e. reproduction cost and replacement cost) provided a reliable estimate can be made and the amount can be expected to be recoverable.

Level 4 - models and techniques that use entity-specific inputs only; when unavoidable and when not demonstrably inconsistent with those which market participants can be expected to use.