Page 40 - DCOM409_CONTEMPORARY_ACCOUNTING

Unit 2: Price Level Accounting

Notes
Example: KSBS Ltd. had the following fixed assets on 31-12-2008:

Assets Cost (`) Depreciation (`) Net (`)
Land 30,000 30,000
Building 80,000 24,000 56,000
Plant 2,60,000 96,000 1,64,000
3,70,000 1,20,000 2,50,000

Plant includes `60,000 installed on 1-1-2008, depreciation was charged at 5% on building, 10% on
plant according to straight line method. The replacement cost indices are as follows:

Assets On the date of Acquisition As on 1-1-2008 As on 31-12-2008
Land 100 250 300
Building 100 200 220
Plant 100 180 225

You are required to show how the balance sheet items will be affected by the changes according
to CCA method.
Solution:

Two items of the balance sheet, which will be affected under the CCA System are Fixed Assets
and Current Cost Accounting Reserve.
(i) Fixed Assets:

Assets Current Cost (`) Depreciation on Current Cost (`) Net (`)
Land 90,000 — 90,000
Building 1,76,000 52,800 1,23,200
Plant & Machinery 5,25,000 2,10,000 3,15,000
7,91,000 2,62,000 5,28,200

(ii) Current Cost Accounting Reserve:
Particulars `
Increase in the cost fixed assets (7,91,000-3,70,000) 4,21,000
Less: Increase in depreciation (2,62,800-1,20,000) 1,42,800
2,78,200
Add: Depreciation Adjustment [Working Note] 25,650
3,03,850

Working Notes:
(a) Computation of Current Costs:
Land: 30,000 × 300/100 90,000
Building: 80,000 × 220/100 1,76,000
Plant: as on 1-1-2008: 2,00,000 × 225/100 4,50,000
Addition during the year. 60,000 × 225/180 75,000 5,25,000
7,91,000
Contd...

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