Current Cost Accounting Summary

The purpose of this part of the website has been to examine the system of current cost accounting recommended for use in the United Kingdom by the Accounting Standards Committee under SSAP 16 Current Cost Accounting. This system is the result of a series of compromises resulting from a debate initiated by the report of the Sandilands Committee in 2014. Current cost accounting is concerned with maintaining the operating capability of the capital of the business and focuses on the value of its net assets, defined as comprising both physical and net monetary assets. Current cost accounting utilizes replacement cost and realizable values in arriving at the adjustments to be made in converting historical cost income to current cost income.

The main features of the required adjustments were examined. They were seen to consist of several items, in particular, a depreciation adjustment which applied to fixed assets, a cost of sales adjustment which deals with changes in inventory costs, and the monetary working capital adjustment which deals with the impact of inflation on trade debtors and trade creditors, and in certain cases, bank balances and overdrafts.

The gearing adjustment reflects the effect of financing assets by borrowing on the current cost profit attributable to shareholders. The current cost reserve shows the effects of these adjustments.


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Read on: Current Cost Reserve

The current cost balance sheet includes a reserve in addition to those included in historical cost accounts. The additional reserve may be referred to as the current cost reserve. The total reserves will include, where appropriate:

(a) unrealized revaluation surpluses on fixed assets, inventories and investments; and

(b) realized amounts equal to the cumulative net total of the current cost adjustments, that is:

(i) the depreciation adjustment (and any adjustments on the disposal of fixed assets);

(ii) the two working capital adjustments; and

(iii)... see: Current Cost Reserve