Calculation of Depreciation Adjustment under Current Cost Accounting Technique

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on June 22, 2021

The Current Cost Accounting method assets are shown in the balance sheet on current replacement costs after allowing for depreciation. This will require an adjustment in depreciation too.

Formula

Current year’s depreciation under CCA can be calculated with the help of following formula:
Calculation of Depreciation Adjustment under Current Cost Accounting (CCA) Technique Formula
And,
Depreciation Adjustment = Current year’s depreciation on CCA – Depreciation on historical cost

Example

A machine was purchased on 1.1.2014 at a cost of $10,00,000 and its useful life was estimated to be 10 years. Its replacement cost was $1,80,000 on 1.1.2019 and 20,00,000 on 31.12.2019. Calculate the amount of depreciation adjustment.

Solution

Current year’s depreciation (CCA method) = (1,80,000 + 20,00,000) / (2 x 10)
= $1,90,000
Historical Depreciation = 10,00,000 / 10 = $1,00,000
Depreciation Adjustment = Current year’s dep. on CCA – Historical dep.
= 1,90,000 – 1,00,000
= $90,0000

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