Chapter 23

Current Cost
Accounting
Clarisse S. Gatchalian
Technical Knowledge

▪ To understand current ▪ To determine realized

cost accounting in and unrealized holding
contrast peso gain or loss.
accounting. ▪ To be able to prepare
▪ To know the meaning financial statements
of current cost. based on current cost.

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CURRENT COST
ACCOUNTING
Current Cost Accounting
▪Current cost accounting is a method of measuring assets,
liabilities, income and expenses at current cost at the end of
reporting period.
▪In other words, current cost accounting is a restatement of
historical cost in terms of current replacement cost.
▪Current replacement cost is the estimated cost to acquire a
similar asset at current purchase price.
▪The essence of current cost accounting is the recognition of a
holding gain or holding loss.
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Current Cost Accounting (cont.)
▪If the replacement cost is higher than historical cost, the
difference is a holding gain.
▪If the replacement cost is lower than historical cost, the
difference is a holding loss.
▪Holding gain or holding loss may be classified as realized and
unrealized.
▪If the asset is still unsold or unused, the holding gain or loss is
said to be unrealized.
▪If the asset is already sold or used, the holding gain or loss is
said to be realized.
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Unrealized holding gain or loss

Unrealized holding gain or loss is a difference between the

current cost and historical cost of assets still on hand or unsold
at the end of the year.

For inventory sold

Current cost at the end of the year xx
Less: Historical cost xx
Unealized holding gain(loss) xx

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Realized gain or loss (cont.)
For depreciable property
Net current cost( current cost – accum.dep) xx
Less: Historical cost xx
Unrealized holding gain(loss) xx

For nondepreciable property(loss)

Current cost at the end of the year xx
Less: Historical cost xx
Unrealized holding gain(loss) xx

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Preparation of current cost income statement
▪Sales
Sales are made at current selling price throughout the period
and therefore not restated.
▪Cost of Good Sold
In current cost accounting, cost of good sold equals the current
cost of the units sold at the time of sale.
In practice, the cost of good sold is equal to the average
unit cost multiplied by the units sold during the period.

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Preparation of current cost income
statement(cont)
▪Operating Expenses
Operating expenses are measured at current cost when incurred.
Accordingly, these expenses are already stated on a current cost
basis.
▪Depreciation
Depreciation is based on average current cost of the property,
plant and equipment.
▪ Income Tax
Income tax is already on a current cost basis.
However, the income tax is computed on the basis of the income
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under historical cost.
Current cost statement of financial position
▪Cash and Receivables
These items are already reported on a current cost basis in
conventional statements and are therefore not restated.
▪Inventory
Inventory is stated at current cost at the end of the reporting
period.
▪ Property, Plant and Equipment
Land is stated at current cost at the end of the reporting period.
Depreciable property, plant and equipment are shown at current
cost minus accumulated depreciation based on current cost at 10
year-end.
Current cost statement of financial position
(cont.)
▪Payables
Payables are conventionally reported on a current basis and
therefore do not require restatement.
▪Share capital and share premium
These items are not restated.
▪ Retained Earnings
The balance of retained earnings is obtained from the current cost
statement of retained earnings.

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Current cost statement of financial position
(cont.)
▪Retained Earnings(cont.)
Current cost retained earnings- January 1 xx
Add: Current cost net income xx
Total xx
Less: Dividend declared or paid xx
Current cost retained earnings- December 31 xx

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Illustration
s:

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Samplar Company
Samplar Company was formed on January 1, 2019.
The Entity presented the following financial statements pertaining
to the year of operations:
Asset
Cash 900,000
Accounts Receivable 1, 340, 000
Inventory 1, 800, 000
Land 1, 400, 000
Equipment(10-year life) 2, 400, 000

Accumulated Depreciation ( 240, 000)

Total Assets 7, 600, 000 14

Samplar Company (cont.)
Liabilities and Shareholder’s equity
Accounts Payable 800,000
Income tax payable 700, 000
Notes Payable 1, 000, 000
Share Capital 4, 200, 000
Retained earnings:
Net Income 1, 300, 000
Dividends ( 400, 000) 900, 000
Total Liabilities and Shareholder’s Equity 7, 600, 000

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Samplar Company (cont.)

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Samplar Company (cont.)

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Samplar Company (cont.)

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Samplar Company (cont.)

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Samplar Company (cont.)

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Samplar Company (cont.)

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