Page 41 - DCOM409_CONTEMPORARY_ACCOUNTING

Contemporary Accounting

Notes (b) Computation of Depreciation, till date:
Building: 24,000 × 220/100 52,800
Plant: as on 1-1-2008: 90,000* × 225/100 2,02,500
Addition during the year: 60,000 × 225/180 7,500 2,10,000
2,62,800
(c) Depreciation Adjustment:
(i) Building: Current cost on 1-1-2008 1,60,000*
Increase during year 16,000
Depreciation @5% on
1,60,000 for full year 8,000
on 16,000 for half year 400
or 5% on (1,60,000 + 1,76,000) / 2 8,400
Already charged in account-5% on 80,000 4,000
Adjustment required 4,400
(ii) Plant & Machinery: Current Cost on 1-1-2008 3,60,000
Increase in 192008 90,000
Addition (on 1-1-2008) 60,000

Particulars `
Increase in value of the addition 15,000
Depreciation @ 10% on ` 3,60,000 for full year 36,000
` 90,000 for half year 4,500
` 60,000 for half year 6,000
`15,000 for half year 750
Or 10% on (420000 + 525000)/2 47,250
Already charged in accounts 26,000
Adjustment required 21^250
Total Depreciation adjustment required: (i) + (ii) 25,650
*Depreciation on the additional plant purchased during the year would be `6,000. On the balance it would be `90,000.

Cost of Sales Adjustment

The Current Cost Accounting method is based on the important principle that current cost must
be matched against current revenue for determining the true operating profit or loss. The
amount of sales requires no adjustment as it is already at current rate.
Items that enter into the computation of cost of sales have to be taken at the present value that is
required to replace them, if consumed or sold. The difference in values is termed as cost of sales
adjustment that is debited (in case of inflation) before deriving operating profit. As the value of
closing stock will also show a higher value the same will be credited to the Current Cost
Accounting Reserve.

Example: From the following information calculate the Cost of Sales under Historical
and Current Cost Accounting Systems.

36 LOVELY PROFESSIONAL UNIVERSITY