Wealth and the Measurement of Profit
Wealth is a static measure and represents stock at a particular point in time. This stock can change over time. The difference between wealth at two time periods is the profit or loss for that time period.
ProfitPeriod1 = Wealth1 - Wealth0, ProfitPeriod2 = Wealth2 = Wealth1 etc.
Historic cost is sthe cost incurred by the individual or entity in acquiring the item, measured at the time of the originating transaction. As the value of money and goods changes over time, it is a fair representation at best. Replacement, or current cost, is the amount that would have to be paid at today's prices to purchase a similar item. It too is only a fair representation, not taking into account technological improvements for items or unique items.
Economic value, or present value, is the value of expected earnings form the using the item discounted at an appropriate rate to give a present day value. The difficulty here is predicting future earnings. Net Realisable value is the estimated proceed of sale, minus marketing and distribution costs etc. NRV does not account for the differences in acceptable price given the position of the entity. Fair value is NRV but not including selling costs.
Historic cost method is the common measurement, as stated in the IASB Framework. However the Framework also recognises other bases of measurement. NFP entities are permitted to use the lower of replacement cost and net realisable value for donated inventory as there is no cost in acquisition.