Accounting Development: Historical Cost, CPPA, CCA, and Fair Value Accounting

Running head: ACCOUNTING DEVELOPMENT
Accounting Development
Name of the Student
Name of the University
Author Note

1ACCOUNTING DEVELOPMENT
Table of Contents
Answer to question 1..................................................................................................................................2
Answer to question 2..................................................................................................................................7
Answer to question 3..................................................................................................................................9
References:................................................................................................................................................13

2ACCOUNTING DEVELOPMENT
Answer to question 1
Historical cost accounting is a conventional process of accounting whereby the transactions are
recorded in terms of money that in that amount which was purchased at the cost at which it was
purchased, that is at historical cost (Grossi et al., 2016, pp. 441-450). This method, the principle of
historical cost requires recognition of the revenue at the price at which it was realized in the financial
statements (David, Wolfender & Dias, 2015, pp. 299-315).
However, the historical cost ignores the value of decline of the monetary value and thus
alternatives has been found in order to replace the technique, according to a recent research by the
international account the alternatives of this method of accounting are :
Constant Purchasing Power Accounting:
The Constant purchasing power accounting that is known as CPPA is a recent accounting model
that has been approved by the international accounting standard board. This has been a great
alternative to historical cost accounting (Borio et al., 2015). In this technique, the capital maintenance of
finance is measured in units of constant power of purchasing in terms of daily index (Grossi et al., 2016,
pp. 441-450). In case of Constant purchasing power accounting, the constant purchasing power of the
capital for a period that is indefinite can be automatically maintained (David, Wolfender & Dias, 2015,
pp. 299-315).
The assumption of the CPPA set by the IFRS (International Financial Reporting Standard)
 It follows the accrual basis of accounting: the transaction effect and the other events that are
relevant are recognized at the time they occur. They are not dependent on the time when the
cash is paid or gained (Krasner, 2014).
 Another assumption is that the PPA follows the going concern basis, that is the business will
carry on till near future.
 The measurement unit of CPPA is in terms of real value (David, Wolfender & Dias, 2015, pp. 299-
315).
Illustrative example of CCPA

3ACCOUNTING DEVELOPMENT
In order to compute, the monetary result of Company X Ltd. as at 31 December 2017, the following
example has been shown. The data are given below:
particulars 1st Jan 2017($) 31st Dec 2017($)
Cash 5000 10000
Debtors 20000 25000
Creaditors 15000 20000
Loan 20000 20000
Retail price index numbers ($):
Jan1, 2017 20
0
Dec 31, 2017 30
0
Average for the
year
24
0
Calculation of purchasing power gain or loss
particulars Unadjusted($) Conversion
factor($)
Adjusted ($)
Net assets as at Jan 1, 2008
Add: increase in monetary receipts
Less: increase in monetary liabilities
Net assets/ liabilities:
(10000)
10000
300/200
300/240
300/240
(15000)
12500
Nil
(5000)
(2500)
(6250)
(5000) (8750)
Gain of purchasing power= $ 8750 – $5000 = $3750