At its most basic level, Gross Current Replacement Cost (GCRC) is exactly what it says on the tin – the estimated cost of replacing an asset or property with the same quality of construction and operational utility. It’s commonly used to accurately determine insurance or re-insurance premiums for personal or business assets.

It is, however, important to understand the difference between an item’s replacement cost, and its liquidation value. The replacement cost (or value) of an asset is generally higher than its liquidation, or book, value, because it doesn’t take depreciation into account. To get to the book value, liabilities are deducted from the replacement cost.

Gross Current Replacement Cost of Buildings and Land

The GCRC is calculated by estimating the cost of replacing an existing permanent structure (including any improvements) with a structure made from the same materials and built to the same dimensions.

The GCRC includes finishes, as well as professional contractor and other professional fees (such as architects and engineers). It does not, however, include any calculations for the cost of land, fixtures and fittings, finance charges, loss of rental, plant, machinery, site clearance/demolition and any escalations during the rebuilding process.

Most valuations of this nature presume that the building’s foundations are standard built on stable ground, and will thus exclude any estimations for additional reinforcement, piling or extra excavation.

Gross Current Replacement Costs of Plant And Machinery

Also called Estimated New Replacement Cost, the GCRC of plant and machinery is the estimated cost of obtaining an asset of equivalent operating capacity as the one needing to be replaced. It would also take into account such factors as levies, import duties, engineering and commissioning, as well as an estimate for machinery dismantling or demolition, and scrap removal.

In both cases, and with all other Gross Current Replacement Cost valuations, the sources of information, and the processes used to arrive at the final cost, need to be well documented and traceable. If the GCRC value is different to the documented Fair Value, this can impact significantly on the level of disclosure required in the financial statements.

At the Property Partnership, we carry out thorough Gross Current Replacement Cost valuations for insurance valuations, loss assessment and arbitration purposes. To find out more, or to chat to us about our other valuation services, get in touch today.