Page 36 - DCOM409_CONTEMPORARY_ACCOUNTING

Unit 2: Price Level Accounting

Working Notes: Notes
1. Monetary items at the end of 2008 have not been adjusted since they are already standing
at current values at the end of that year.
2. The amount of retained earnings has been taken from the Income Statement as adjusted
according to CPP Method.
3. In the preceding pages, the net profit of the business has been determined by restating all
items in CPP terms. In case it is desired to determine the net profit after tax for the year
2008 according to ‘net change method’, this can be done with the help of comparative
balance sheet restated in CPP terms as shown on page 3.175. Net profit for 2008 will be the
excess of Reserves in 2008 over that in 2007 as stated in CPP terms, as shown below:

`
Assets in CPP terms as on 31-12-2008 7,04,548
Add: Dividends paid on 31-12-91 40,000
7,44,548
Less: Liabilities in CPP terms as on 31-12-2008 6,64,640
Reserves as on 31-12-2008 79,908
Less: Reserves as on 1-12-2008 (Nil)
Net profit for 2008 (after tax but before dividends) 79,908
ABC Limited
Comparative Balance Sheet
As on 31st Dec. 2007 As on 31st Dec. 2008
Historical Conversion CPP Historical Conversion CPP
Cost factor Method Cost factor Method
basis rolled basis
forward
to end of
2008
Assets
Cash and 2,00,000 1.092 2,18,400 2,60,000 Note 1 2,60,000
Receivables
Inventories 1,50,000 1.092 1,63,800 1,30,000 1.040 1,35,200
Land 40,000 1.092 43,680 40,000 1.092 43,680
Equipment 2,10,000 1.092 2,29,320 2,70,000 1.092 2,91,720
Less: Nil Nil (24,000) (21,000x1.092) (26,052)
Accumulated
depreciation
(3,000x1.040)
6,00,000 6,55,200 6,76,000 7,04,548
Liabilities &
Share Capital
Current 80,000 1.092 87,360 90,000 Note 1 90,000
Liabilities
Long-term 1,00,000 1.092 1,09,200 1,16,000 Note 1 1,16,000
Liabilities
Equity Share 1,40,000 1.092 1,52,20080 1,40,000 1.092 1,52,20080
Capital (` 10
shares)
Share Premium 2,80,000 1.092 3,05,760 2,80,000 1.092 3,05,760
Retained Nil Nil 50,000 Note 2 39,908
Earnings
6,00,000 6,55,200 6,76,000 7,04,548

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