In current cost accounting (CCA), assets are shown in the balance sheet at the current replacement costs after allowing for depreciation. This also requires an adjustment for depreciation.

Formula

Use the following formula to calculate the current year’s depreciation under CCA:
Formula For Calculation of Depreciation Adjustment Under CCA
To calculate the depreciation adjustment, the following formula can be used:

Depreciation adjustment = Current year’s depreciation on CCA – Depreciation on historical cost

Example

A machine was purchased on 1 January 2014 at a cost of $1,000,000. Its useful life was estimated at 10 years. The machine’s replacement cost was $180,000 on 1 January 2019 and $2,000,000 on 31 December 2019. Calculate the depreciation adjustment.

Solution

Current year’s depreciation (CCA method) = (180,000 + 2,000,000) / (2 x 10)
= $190,000
Historical depreciation = 1,000,000 / 10 = $100,000
Depreciation adjustment = Current year’s depreciation on CCA – Historical depreciation
= 190,000 – 100,000
= $90,0000

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True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

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