It stands for depreciated replacement cost; the depreciated replacement cost of an asset is the current replacement cost of the asset, less accumulated depreciation (computed on the basis of such a cost to account for the future economic benefits of the asset). This measure of replacement cost is meant to normalize this cost by taking the effect of accumulated depreciation into consideration. This is expected to establish an equitable basis of valuation assuming that the asset in question has been in use and has depreciated over a period, prompting the user (an entity) to lower its replacement cost needs, reflecting the deterioration in the asset’s future economic benefits.

Overall, the calculation of depreciation replacement cost is aimed at establishing a fair basis of valuation of the asset (typically a depreciable asset). Under specific situations, this measure can be used as an alternative to fair value: where market evidence is neither available nor reliable to reach at fair value of the asset (e.g., to carry an item like property, plant and equipment (PPE) on a revaluation basis).