The ACV formula is: Replacement cost less deprecation.

• A. Replacement Cost Less Depreciation
• B. Original Cost Minus Depreciation
• C. Market Value
• D. Replacement Cost Plus Depreciation

Answer: (A)

Actual Cash Value shows the amount it would cost to replace the item today, minus its depreciation for age, wear, and condition. The best answer matches this: take the current replacement cost and subtract depreciation. That’s why Replacement Cost Less Depreciation is the right formula. Replacement cost is what it would cost to replace the item with a like kind and quality right now; depreciation accounts for how worn or old the item is. For example, if the current replacement cost is $20,000 and depreciation is $3,000, ACV would be $17,000. The other options aren’t correct because original cost minus depreciation uses what you originally paid rather than current replacement cost; market value reflects what someone would pay in the market and isn’t fixed by replacement cost minus depreciation; and replacement cost plus depreciation would overstate value by adding back depreciation.