Current Cost Accounting

CHAPTER 23
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 the 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.
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 holding loss is said to
be unrealized.
If the asset is already sold or used during the year, the holding gain or holding
loss is said to be realized.
Realized holding gain or loss
Realized holding gain or loss is the difference between the current cost and
historical cost of assets sold or used during the year.
For inventory sold
Cost of sales at average current cost xx
Less: Cost of sales at historical cost xx
Realized holding gain (loss) xx
For depreciable property
Depreciation based on average current cost xx
Less: Depreciation based on historical cost xx
For non-depreciable property (land)
Current cost at the time of sale xx
Less: Historical cost xx
Unrealized holding gain or loss
Unrealized holding gain or loss is the difference between the current cost and
historical cost of the assets still on hand or unsold at the end of the year.
For ending inventory
Current cost at the end of the year xx
Unrealized holding gain (loss) xx

For depreciable property
Net current cost (current cost - accumulated depreciation) xx
Less: Carrying amount xx
For non-depreciable property
Current cost at the end of the year xx
Preparation of current cost income statement
Sales
Sales are made at current selling prices throughout the period and therefore
not restated.
Cost of goods sold
In current cost accounting, cost of goods sold equals the current cost of the
units sold at the time of sale.
In practice, cost of goods sold is equal to the average unit cost multiplied
by the units sold during the period.
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 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 year-end.
Payables
Payables are so conventionally reported on a current basis and therefore do

not require restatement.
Share capital and share premiums
These items are not restated.

Retained earnings
The balance of retained earnings is obtained from current cost statement of

retained earnings.
Current cost retained earnings – January 1 xx
Add: Current cost net income xx
Total xx
Less: Dividends declared or paid
Current cost retained earnings – December 31 xx
Illustrations
Sampiar Company was formed on January: 1,2019.
The entity presented the following financial statements pertaining to the first
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

Liabilities and Shareholders’ 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 shareholders’ equity 7,600,000
Income statement
Sales 800,000
Cost of goods sold:
Inventory – January 1 2,000,000
Purchases 4,200,000
Goods available for sale 6,200,000
Inventory – December 31 (1,800,000) 4,400,000
Gross income 3,600,000
Operating expenses:
Expenses 1,360,000
Depreciation 240,000 1,600,000
Income before tax 2,000,000
Income tax 700,000

The current cost information is as follows:
Cost of goods sold at average current cost 5,200,000
Inventory – December 31 2,040,000
Land – December 31 3,200,000
Equipment – December 31 2,800,000
The following computations are necessary in preparing an income

statement and a statement of financial position in conformity with current cost
accounting:
1. Cost of goods sold – average current cost 5,200,000
Cost of goods sold – historical cost 4,400,000

(see income statement)
Realized holding gain 800,000
2. Average current cost

(2,400,000 + 2,800,000 = 5,200,000 / 2) 2,600,000
Depreciation on average current cost

(260,000 / 10) 260,000
Depreciation on historical cost
(240,000 / 10) 240,000
3. Equipment — cost 2 400,000

Carrying amount 2,160,000
4. Equipment — current cost 2,800,000

Accumulated depreciation (2,800,000/10) (280,000)
Net current cost 2,520,000
*Note that the accumulated depreciation is based on the ending current cost and not on the
average current cost of the equipment.
5. Unrealized holding gain:

Current cost Historical cost Unrealized
holding gain Equipment 2,520,000 2,160,000
360,000
Inventory – Dec 31 2,040,000 1,800,000 240,000
Land 3,200,000 1,400,000 1,800,000
Total unrealized gain 2,400,000
SAMPLAR COMPANY
Income Statement
Year ended December: 31, 2019
Sales 8,000,000
Cost of goods sold 5,200,000
Other income:
Unrealized holding gain 2,400,000 3,220,000
Total income 6,020,000
Operating expenses:
Expenses 1,360,000
Depreciation 260,000 1,620,000
Income before tax 4,400,000
Income tax
700,000
Realized holding gain on inventory sold 800,000
Realized holding gain on equipment 20,000
Total realized holding 820,000
SAMPLAR COMPANY
Statement of Financial Position
December: 31, 2019
Assets
Current assets:
Cash 900,000
Accounts receivable 1,340,000
Inventory 2,040,000
4,280,000
Non-current assets:
Land 3,200,000
Equipment 2,800,000
Accumulated depreciation (280,000) 2,520,000 5,720,000

Current liabilities
Notes payable 1,000,000
Income tax payable 700,000 2,500,000
Shareholders’ equity:
Retained earnings:
Dividends (400,000) 3,300,000 7,500,000
QUESTIONS
1. What is current cost accounting?
2. Explain the meaning of current replacement cost.
3. Explain holding gain and holding loss.
4. Explain realized holding gain and realized holding loss.
5. Explain unrealized holding gain and unrealized holding
6. Explain the restatement of the following under current cost accounting:
a. Sales
b. Cost of goods sold
c. Operating expenses
d. Depreciation
e. Income tax
f. Cash and receivables
g. Ending inventory
h. Property, plant and equipment
i. Payables
j. Share capital and other equity items
k. Retained earnings
7. Explain the computation of realized holding gain or realized holding loss for
the following:
a. Inventory sold
b. Depreciable property
c. Non-depreciable property
8. Explain the computation of unrealized holding gain or unrealized holding

loss for the following:
a. Inventory sold
b. Depreciable property
c. Non-depreciable property
PROBLEMS
Problem 23-1 (IAA)
Simple Company reported the following information in relation to land:
* The entity purchased land on January 1, 2019 for ₱500,000 cash. On

December 31, 2019, the land has a current replacement cost of ₱600,000
*On December 31, 2020, the land has a current replacement cost of 750,000.
*The entity sold the land for P 1,000,000 cash on December 31, 2021. On this
date, the current replacement cost of the land is ₱800,000.
1. What is the unrealized holding gain to be reported in 2019?
a. 600,000
b. 500,000
c. 100,000
d. 0
2. What is the unrealized holding gain to be reported in 2020?
a. 250,000
b. 150,000
c. 100,000
d. 0
3. What is the realized holding gain to be reported in 2021?
a. 300,000
b. 250,000
c. 50,000
d. 0
4. What is the gain on sale of land to be reported in 2021?
a. 500,000
b. 250,000
c. 200,000
d. 150,000
Problem 23-2 (IAA)
Easy Company acquired equipment on January 1, 2019 for ₱5,000,000.
Depreciation is computed using the straight line method. The estimated useful
life of the equipment is five years with no residual value.
A specific price index applicable to the equipment was 150 on January 1,

2019 and 225 on December 31, 2019.
1. What amount of depreciation should be reported in the historical cost

income statement for 2019?
a. 1,000,000
b. 1,500,000
c. 1,125,000
d. 2,500,000
2. What amount of depreciation should be reported in the current cost

a. 1,500,000
b. 1,250,000 -
c. 1,000,000
d. 2,500,000
3. What is the realized holding gain on the equipment to be reported in

2019?
a. 500,000
b. 250,000
c. 300,000
d. 0
4. What is the unrealized holding gain on the equipment to be reported in

2019?
a. 1,250,000 c. 300,000
b. 2,500,000 d. 0
Problem 23-3 (AICPA Adapted)
Kerr Company purchased a machine for P1,150,000 on January 1, 2019, the

first day of operation.
The current cost of the machine was P 1,250,000 on December 31, 2019.
The machine has no residual value, has a five-year life and is depreciated by
the straight line method.
1. What amount of depreciation should be reported in the historical cost

a. 230,000
b. 250,000
c. 240,000
d. 200,000
2. What amount of depreciation expense should be reported in the current

cost income statement for 2019?
a. 140,000
b. 230,000
c. 240,000
d. 250,000
3. What is the realized holding gain on the equipment for 2019?
a. 20,000
b. 10,000
c. 30,000
d. 0
4. What is the unrealized holding gain on the equipment for 2019?
a. 100,000 •
b. 280,000
c. 80,000
d. 50,000

Weaver Company reported the following property, plant and equipment on
December 31, 2019:
Year Acquired Percent depreciated Historical cost Current cost
2017 30 1,000,000 1,400,000
2018 20 300,000 380,000
2019 10 400,000 440,000
The entity calculated depreciation at 10% line.
A full year depreciation is charged in the year of acquisition were no disposals

of property, plant and equipment.
In the statement of financial position restated to current what is the net

current cost of the property, plant and equipment?
a. 1,160,000
b. 1,300,000
c. 1,680,000
d. 1,820,000
Jannis Company owned the following two assets at year-end:
Equipment Inventory
Current cost 100,000 80,000
Recoverable amount 95,000 90,000
The entity voluntarily disclosed information about current
In such a disclosure, what total amount should be reported for the equipment
and inventory?
a. 175,000 c. 185,000
b. 180,000 d. 190,000

Roundtree Company reported the following information with respect to cost of
goods sold for the current year:
Units Historical
Cost Inventory — January 1 10,000 530,000
Purchases 45,000 2,790,000
Goods available for sale 55,000 3,320,000
The current cost per unit of inventory was P58 on January 1 and P72 on
December 31.
1. In the statement of financial position restated to current cost, what is the

inventory on December 31?
a. 540,000
b. 975,000
c. 875,000
d. 870,000
2. What is the unrealized holding gain on inventory for the current year?
a. 210,000
b. 135,000
c. 105,000
d. 30,000
3. In the income statement restated to current cost, what is the cost of goods
sold for the current year?
a. 2,320,000
b. 2,880,000
c. 2,600,000
d. 2,375,000
4. In the income statement restated to current cost, what is the realized

holding gain from the inventory sold for the current year?
a. 225,000
b. 135,000
c. 350,000
d. 505,000
Rice Company used FIFO. There were 8,000 units on January 1 costing
₱400,000.
Historical cost Units purchased Units sold

First quarter 410,000 7,000 7,500
Second quarter 550,000 8,500 7,300
Third quarter 425,000 6,500 8,200
Fourth quarter 630,000 9,000 7,000
The current cost per unit of inventory was P57 on January 1 and P71 on
December 31.
1. What is the inventory on December 31 at current cost?
a. 576,000
b. 585,000
c. 630,000
d. 639,000
2. What is the unrealized gain on inventory for the current year?
a. 126,000
b. 54,000
c. 9,000
d. 0
a. 1,920,000
b. 1,944,000
c. 2,100,000
d. 2,130,000
4. What is the realized holding gain on inventory for the current year?
a. 345,000
b. 135,000
c. 230,000
d. 75,000
Bar Company provided the following information with respect to cost of goods
sold for the current year:
Historical cost Units
Inventory, January 1 1,060,000 20,000
Purchases during the year 5,580,000 90,000
Goods available for sale 6,640,000 110,000
Inventory, December 31 (2,520,000) (40,000)
Cost of goods sold 4,120,000 70,000
The current cost per unit of inventory was P58 on January 1 and P 72 on
December 31.
1. What is the inventory on December 31 at current cost?
a. 2,880,000
b. 2,600,000
c. 2,320,000
d. 2,520,000
2. What is the unrealized holding gain on inventory for the current year?
a. 560,000
b. 360,000
c. 80,000
d. 0
a. 5,040,000
b. 4,550,000
c. 4,410,000
d. 4,060,000
4. What is the realized holding gain on inventory for the current year?
a. 790,000
b. 920,000
c. 430,000
d. 560,000
At the beginning of current year, Autumn Company purchased 50,000 units at

P 100 per unit. During the year, the entity sold 40,000 units at P 180 per unit.
The entity paid P700,000 for operating expenses.
The current replacement cost of the inventory at year-end is P 150 per unit.
1. What is the realized holding gain on inventory for the current year? What
is the unrealized holding gain on inventory for the current year?
a. 2,000,000
b. 1,000,000
c. 1,500,000
d. 0
2. What is the unrealized holding gain on inventory for the current year
a. 600,000
b. 250,000
c. 500,000
d. 0
3. What is the net income under current cost accounting for the current year?
a. 3,200,000
b. 2,500,000
c. 3,700,000
d. 3,000,000
4. What is the net income under historical cost accounting for the current
year?
a. 2,500,000
b. 3,200,000
c. 2,200,000
d. 4,000,000
On January 1, 2019, Zoe Company paid ₱2,000,000 for land. On December

31, 2019, the current cost of the land was ₱2,200,000.
On January 31, 2020, the land was sold for P2,250,000. There was no
change in the current cost of the land on January 31 2020.
1. What amount of unrealized gain should be recognized in 2019?
a. 200,000
b. 250,000
c. 50,000
d. 0
2. What amount of gain on sale of land should be recognized in the current

cost income statement for 2020?
a. 250,000
b. 200,000
c. 50,000
d. 0
Marie Company disclosed supplemental information on the effects of

changing prices. The entity computed the following increase in current cost of
inventory:
Increase in current cost (nominal peso) 1,500,000
Increase in current cost (constant peso) 1,200,000
What amount should be disclosed as the inflation component of the increase

in current cost of inventory?
a. 1,200,000
b. 1,500,000
c. 2,700,000
d. 300,000
Problem 23-12 (IAA)
Legaspi Company was formed on January 1, 2019. The entity reported the
following financial statements pertaining to the first year of operations:
Sales 6,500,000
Cost of goods sold:
Inventory — January I 1,000,000
Purchases 3,100,000
Goods available for sale 4,100,000
Inventory — December 31 (900,000) 3,200,000
Operating expenses:
Expenses 700,000
Depreciation 100,000 800,000
Income before income tax
1,000,000
Less: Income tax 350,000
Net income 650,000
Assets
Cash 500,000
Accounts receivable 600,000
Inventory 900,000
Land 800,000
Equipment (10-year life) 1,000,000

Notes payable 400,000
Income tax payable 350,000
Retained earnings:
Net income 650,000
Dividends (200,000) 450,000
Current cost information on December 31, 2019:

Cost of goods sold at average current cost 3,500,000
Inventory 1,000,000
Land 1,500,000
Equipment 1,600,000
Requirement:
Prepare an income statement and a statement of financial position in
accordance with current cost accounting
Problem 23-13 Multiple choice (AICPA Adapted)
1. In current cost financial statements
a. General price level gains or losses are recognized.
b. Amounts are always stated in common purchasing power.
c. All items are different from what they would be historical cost statement of
financial position.
d. Holding gains are recognized.
2. When an entity adjusted the historical cost income statement by applying

specific price index to depreciation, the income statement is prepared
according to
a. Fair value accounting
b. Purchasing power accounting
c. Current cost accounting
d. Nominal peso accounting
3. When an entity prepares financial statements on a current cost basis, how

is the cost of goods sold computed?
a. Number of units sold times average current cost
b. Number of units sold times current cost at year-end
c. Number of units sold times beginning current cost
d. Beginning inventory at current cost plus cost of goods purchased less

ending inventory at current cost
4. In a period of inflation, an entity discloses income on a current cost basis.

Compared to historical cost income, which condition increases the current
cost income?
a. Current cost is the same as historical cost.
b. Current cost of land is less than historical cost.
c. Current cost of goods sold is less than historical cost.
d. Ending net monetary assets are less than beginning

5. Could current cost financial statements report holding gains during the
period for which of the following?
a. Goods sold
b. Inventory
c. Goods sold and inventory
d. Neither goods sold nor inventory

Current Cost Accounting

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CHAPTER 23

CURRENT COST ACCOUNTING

Current cost accounting is a method of measuring assets, liabilities, income

In other words, current cost accounting is the restatement of historical cost in

Current replacement cost is the estimated cost to acquire a similar asset at

The essence of current cost accounting is the recognition of a holding gain or

If the replacement cost is higher than historical cost, the difference is a

Holding gain or holding loss may be classified as realized and unrealized.

Realized holding gain or loss

Cost of sales at average current cost xx

Less: Cost of sales at historical cost xx

Realized holding gain (loss) xx

For depreciable property

Depreciation based on average current cost xx

Less: Depreciation based on historical cost xx

Realized holding gain (loss) xx

For non-depreciable property (land)

Current cost at the time of sale xx

Less: Historical cost xx

Realized holding gain (loss) xx

Unrealized holding gain or loss

For ending inventory

Current cost at the end of the year xx

Less: Historical cost xx

Unrealized holding gain (loss) xx

Net current cost (current cost - accumulated depreciation) xx

Less: Carrying amount xx

Unrealized holding gain (loss) xx

For non-depreciable property

Current cost at the end of the year xx

Less: Historical cost xx

Unrealized holding gain (loss) xx

Preparation of current cost income statement

Cost of goods sold

Operating expenses are measured at current cost when incurred. Accordingly,

Depreciation is based on average current cost of the property, plant and

Current cost statement of financial position

Cash and Receivables

These items are already reported on a current cost basis in conventional

Inventory is stated at current cost at the end of the reporting period.

Property, plant and equipment

Payables are so conventionally reported on a current basis and therefore do

Share capital and share premiums

These items are not restated.

The balance of retained earnings is obtained from current cost statement of

Current cost retained earnings – January 1 xx

Add: Current cost net income xx

Less: Dividends declared or paid

Current cost retained earnings – December 31 xx

Sampiar Company was formed on January: 1,2019.

Accounts receivable 1,340,000

Equipment (10-year life) 2,400,000

Accumulated depreciation (240,000)

Total assets 7,600,000

Accounts payable 800,000

Income tax payable 700,000

Notes payable 1,000,000

Share capital 4,200,000

Net income 1,300,000

Dividends (400,000) 900,000

Total liabilities and shareholders’ equity 7,600,000

Cost of goods sold: