Original Alternative Methods Of Historical Cost Accounting

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Introduction Nowadays, most companies usually utilize the Historical Cost accounting to report financial statements and reflect the profitability of business. It is more conventional and simple method. Nevertheless, when considered in relation to inflation and price changes, the alternative methods such as Current Purchasing Power Accounting (CPPA), Continuously Contemporary Accounting(CoCoA) and Current Cost Accounting(CCA) would be more appropriate. There is an assumption that ‘ applying those alternative forms of accounting to adjust items in financial statements is a useful approach to reflect the profitability of a company for shareholders and stakeholders’. Firstly, this statement can be assumed as correct, and it will be discussed…show more content…
As far as gearing adjustment concern, it has much argument about whether it should be adjusted. The ACC method was advocated by Edwards and Bell, they adopt a physical capital maintenance approach to income recognition. The valuations in this approach should based on replacement costs. Moreover, the operating income can be regarded as realized revenues less the replacement cost of the assets (Mohiuddin,2014). Advantage and disadvantage Compared with the method of historical cost accounting, the CCA shows more relevant to market. It provides up-to-data information with financial market, at the same time, the differentiating operating profits from holding gains and losses also can enhance usefulness of information provided. Furthermore, it takes inflationary adjustments into account whereas historical cost accounting does not mention it at all. In addition, the creditors and investors also prefer the market value accounting on account of the valuable information like the market value, the changes in that value, the components of that changes would be provided on the reporting data, it is useful for them making decisions. Nevertheless, there are some limitations should not be ignored. The replacement cost of assets may not be the same for all
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