# Actual Cash Value Calculator

With this actual cash value calculator, we aim to help you to **calculate the actual cash value of your assets**. The actual cash value enables you to understand the worst of your assets after considering the replacement cost and depreciation.

We have written this article to help you understand **what the actual cash value is** and **how to calculate the actual cash value**. We will also demonstrate some examples to help you understand the actual cash value vs. replacement cost.

## What is actual cash value? Actual cash value definition

The actual cash value (ACV) is equivalent to the **replacement cost of an item minus its depreciation**. Although the actual cash value **reflects the accounting value of an item**, it does not necessarily reflect the economic value of the item. That means an item can be more or less valuable than its actual cash value when you sell it.

To learn more about economic value, visit our economic value added calculator.

## How to calculate the actual cash value?

To understand the actual cash value calculation, let's look at how the actual cash value of a car is determined.

- Purchase price of a car: $250,000
- Expected life of the car: 10 years
- The current life of the car: 3 years

The actual cash value (ACV) involves four steps:

**Determine the purchase price of your car**

For this example, the

`purchase price`

of the car is`$250,000`

.

**Estimate the expected life of your car**

The

`expected life`

of a car is the number of years the vehicle is expected to have value. The`expected life`

of the car in this example is`10 years`

.

**Calculate the current life of your car**

The

`current life`

of the car is the number of years that the car has been used since it was first purchased. Hence, the`current life`

of the car is`3 years`

.

**Calculate the actual cash value of your car**

The last step is to calculate the actual cash value of the car,

`ACV`

, using the formula below:

`ACV = purchase price * (expected life - current life) / expected life`

Thus, the

`ACV`

of the car in this example is`$250,000 * (10 - 3) / 10 = $175,000`

.

## Why is actual cash value important? Actual cash value vs replacement cost

The actual cash value is important if you buy any kind of insurance. As an insurance policyholder, you would probably prefer to be paid the replacement cost instead of the actual cash value. For instance, if your car is destroyed in an accident, **getting paid the replacement cost will allow you to buy a new car** of the same kind, but the **actual cash value would probably not be enough for you to do that as it takes into account of the depreciation**.

Hence, before you sign or buy any insurance, make sure you read the terms of the policies carefully. If the insurer tells you that they will only pay you back the actual cash value, you need to make sure that this is a risk that you can accept.

if you would like to learn more about calculating depreciation or risk, you should look at our risk calculator and car depreciation calculator

## FAQ

### Can actual cash value be negative?

**No**, the actual cash value cannot be negative. This is because a negative actual cash value means a negative purchase price or the current life of the item is larger than the expected life of the item, both of which are unrealistic.

### How is actual cash value of a car determined?

You can determine the actual cash value of your car in four steps:

**Determine the purchase price of your car****Estimate the expected life of your car****Calculate the current life of your car****Apply the actual cash value formula:**`ACV = purchase price * (expected life - current life) / expected life`

### What is the expected life of an item?

The expected life of an item is the **number of years that the item can remain valuable or in use**. Written differently, this is the number of years it takes for the item to go to waste.

### What is depreciation?

Depreciation happens when an **item or asset losses its value over its expected life**. In accounting, it is a **method that allocates the cost of an asset over its expected life**.

### What is the actual cash value if the expected life equals to the current life?

The **actual cash value of the item would be $0**. It is so because it means that the good is already fully depreciated.