tailieunhanh - Lecture Framework of financial reporting - Lecture 9

The main contents of the chapter consist of the following: Alternative to historical cost accounting, constant purchasing power accounting, advantages of CPP accounting, disadvantages of CPP, current cost accounting (CCA), disadvantages of CCA,. | Revise lecture 9 1 Alternative to historical cost accounting The alternative to historical cost accounting is a form of current value accounting, either: Constant purchasing power (CPP) or Current cost accounting (CCA) 2 Alternative to historical cost accounting Constant purchasing power accounting Accounts figures are adjusted to show all figures in terms of money with the same purchasing power A general price index is used for this Figures in the IS and SFP are adjusted by the CPP factor CPP factor = Index at the reporting date / Index at the date of entry in accounts 3 Alternative to historical cost accounting Advantages of CPP accounting CPP accounting is both simple and objective. It relies on the standard index It adjusts for changes in the unit of measurement and therefore is a true system of inflation accounting It measures the impact on the company in terms of shareholders purchasing power 4 Alternative to historical cost accounting Disadvantages of CPP Its fails to capture economic substance when specific and general price movements diverge The unfamiliarity of information stated in terms of current purchasing power units CPP does not show the current values (value to the business) of assets and liabilities The general price index used is not necessarily appropriate for all assets in all businesses 5 Alternative to historical cost accounting Current cost accounting (CCA) It is based on deprival values or value to the business Stock and non-current assets are valued at deprival value Monetary assets (cash, receivables, payables, loans) are not adjusted Assets are stated at their value to the business Holding gains are eliminated from profit Users will be able to assess the current state or recent performance of the business 6 Alternative to historical cost accounting Disadvantages of CCA Possibility greater subjectivity and lower reliability than historical cost Lack of familiarity Complexity CCA only adjust values for non-monetary asset not all assets and | Revise lecture 9 1 Alternative to historical cost accounting The alternative to historical cost accounting is a form of current value accounting, either: Constant purchasing power (CPP) or Current cost accounting (CCA) 2 Alternative to historical cost accounting Constant purchasing power accounting Accounts figures are adjusted to show all figures in terms of money with the same purchasing power A general price index is used for this Figures in the IS and SFP are adjusted by the CPP factor CPP factor = Index at the reporting date / Index at the date of entry in accounts 3 Alternative to historical cost accounting Advantages of CPP accounting CPP accounting is both simple and objective. It relies on the standard index It adjusts for changes in the unit of measurement and therefore is a true system of inflation accounting It measures the impact on the company in terms of shareholders purchasing power 4 Alternative to historical cost accounting Disadvantages of CPP Its fails to capture .