Describe Current Replacement Cost, Net Realizable Value, Fair Value, and the Present Value of Future Net Cash Flow use in valuing assets

Current Replacement Cost

The current replacement cost of an asset is the amount a firm would have to pay to obtain another asset with identical service potential; it is therefore an entry value that reflects economic conditions at the measurement date. This measurement attribute is used in U.S. GAAP to measure inventories whose usefulness (typically, in terms of salability) to the
firm has declined below the cost of the inventories. Because inventories are purchased or produced frequently, measuring their current replacement cost may be as simple as consulting suppliers' catalogs or price lists.

Net Realizable Value Net realizable value is the net cash (selling price less selling costs)
that the firm would receive if it sold the asset today, in orderly fashion in an arm's-length transaction. Net realizable value is an example of an exit value, because it reflects a price that the firm would receive in a transaction in which an asset leaves the firm. Net realizable value is similar, but not identical, to fair value, discussed next.

Fair Value.

U.S. GAAP explicitly defines the fair value of an asset as "the price that would be received to sell an asset [or paid to transfer a liability] in an orderly transaction between market participants at the measurement date.". Thus, U.S. GAAP defines fair value as an exit
value, namely, the amount the firm would receive if it sold an asset in an orderly,
arm's-length transaction at the measurement date. Fair value does not include selling costs
or other transaction costs in the measurement, which net realizable value (discussed above) includes. The notion of fair value as an exit value applies to both assets and liabilities in U.S. GAAP. IFRS, however, defines fair value more generally as a current exchange value, which can mean either a current entry price—that is, replacement cost—or a current exit price.

The fair value of an asset as defined in U.S. GAAP is an opportunity cost in the sense that fair value reflects an amount that the firm could receive if it sold the asset today. Fair value
is the amount the firm forgoes by not selling the asset. In U.S. GAAP, fair value reflects a market participant perspective, so that the intentions of managers regarding how they plan to use the asset do not determine the fair value measurement. Instead, the firm measures fair value based on how market participants would use the asset. In addition, fair value captures current economic conditions, as opposed to acquisition cost, which captures the economic conditions that existed when the firm acquired the asset. As a result, fair value can (and does) change, with the frequency, direction, and magnitude of changes determined by economic conditions.

Fair value is also a hypothetical amount (that is, the price at which the firm could sell the asset), so it does not require data from actual transactions for the asset's measurement. In contrast, acquisition costs of assets are typically readily observable from records of actual transactions, such as invoices, contracts, and canceled checks. Fair value measurements
need not be based on transactions. The objective is to measure an asset the firm still owns using a hypothetical price. Some assets are traded in well-organized and active markets, so the firm can observe fair values. For example, many commodities and securities trade on exchanges that produce daily and even hourly prices. Because many assets do not trade in active markets, the firm must estimate the fair value for such assets. U.S. GAAP requires that a fair value measurement use measurement techniques, inputs, and assumptions that market participants would use if they were arriving at a transaction price.

Present Value of Future Net Cash Flows

Present value is the amount that results from using an appropriate interest rate to discount one or more future cash flows to the present. The present value of a stream of future cash flows is the sum of the present values of the individual future cash inflows and outflows associated with an asset. Present value is not, in and of itself, a measurement attribute. Rather, it is a means of arriving at a measurement attribute. If the inputs to a present value calculation—the discount rate and the future cash inflows and outflows—are amounts that market participants would use, the firm can use this technique to arrive at a fair value estimate. The present value of an asset is always less than the sum of the undiscounted future cash inflows and outflows associated with that asset, because some amount of implied interest, or capital cost, is always associated with the use of cash and other resources.