Meaning Of Current Costing Accounting (CCA) Approach
Current costing method is an alternative to current purchasing power (CPP) method. CCA approach was introduced in 1975 to overcome the difficulties of CPP method.Actually the CPP method applies the retail price index for finding out the conversion factors to restate the income statement and balance sheet. So the CPP approach was criticized by the business world.
Current costing accounting (CCA) approach recognizes the changes in the price of individual due to the change in general price level. This is the method which includes the process of preparing and interpreting financial statement in such a way that relevant change in the price is considered significantly. In CCA method, the assets are valued in current cost basis. It does not consider the retail price index. This method considers the replacement value of the assets for its real accounting records. The value of assets at which it is to be replaced in future is called the replacement value. Sometimes it is known as replacement cost accounting approach also. Under this method, each financial statement is to be restated in terms of the current value of such items.
Current costing method is an alternative to current purchasing power (CPP) method. CCA approach was introduced in 1975 to overcome the difficulties of CPP method.Actually the CPP method applies the retail price index for finding out the conversion factors to restate the income statement and balance sheet. So the CPP approach was criticized by the business world.
Current costing accounting (CCA) approach recognizes the changes in the price of individual due to the change in general price level. This is the method which includes the process of preparing and interpreting financial statement in such a way that relevant change in the price is considered significantly. In CCA method, the assets are valued in current cost basis. It does not consider the retail price index. This method considers the replacement value of the assets for its real accounting records. The value of assets at which it is to be replaced in future is called the replacement value. Sometimes it is known as replacement cost accounting approach also. Under this method, each financial statement is to be restated in terms of the current value of such items.
Features Of Current Cost Accounting(CCA)
1. The fixed assets are recorded at replacement cost value in the balance sheet.
2. Inventories are shown at market value rather than market or cost price whichever less as in the historical system is.
3. Revaluation surplus are transferred to current cost accounting reserve but not distributed as dividend to shareholders.
4. Depreciation of fixed assets is to be calculated at replacement value.
5. Two types of profit i.e. profit from operation and profit from revaluation are calculated.
6. Liabilities are recorded in their original value because there is no any change in monetary unit.
Objectives Of Current Cost Accounting(CCA) Approach
1. To provide correct and reliable financial information based on the current replacement cost.
2. To calculate the profit without changing the historical profit.
3. To protect the business in the event of normal inflationary situation.
4. To keep level of capital in very balance position by making valuation of assets in proper value based on replacement value.
5. To provide realistic information to the management, investors, creditors, government and to other interested parties.
6. To prepare the financial statement at the end of the year on the basis of current value of such items.