Page 22 - Finac1 Test 1 slides - 2. The Conceptual Framwork

THE CONCEPTUAL FRAMEWORK

Capital Maintenance

Alternatives to historical cost accounting

• There are two main forms of current value accounting which seek to
tackle the disadvantages of historical cost accounting.

• Constant Purchasing Power (CPP)

• Figures in the financial statements are adjusted to reflect amounts

with the same purchasing power, using a general price index.

• In this way the financial statements reflect the impact of inflation,

although it is only a general inflationary impact.

• Current Cost Accounting (CCA)

• All costs in the statement of profit or loss are adjusted to show the
value of assets consumed during the period, based on current rather

than historical values.
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