o Purchase cost less depreciation is the new or original cost less accumulated depreciation. This cost basis method is recommended for long-lived assets during stable prices, such as machinery or breeding stock.
o Replacement cost less depreciation is used to estimate owner equity. It is recommended for machinery and breeding stock during periods of inflation or deflation.
o Replacement cost for equivalent function less depreciation also is used to estimate owner equity in assets that are now used for other than the original purchase. It considers the product value of assets. This method is recommended for old buildings remodelled for new uses, an old barn converted to hog finishing, for example.
o Income capitalization is used to convert a stream of income into the value of an asset at a particular point in time. This is used for land or buildings. It can be compared with the estimated market value to determine the proportion of the market value that is coming from appreciation versus income generation. It can also be used to evaluate whether the market price is incorrect.