## Monetary Working Capital Adjustment (MWCA)

Definition Working capital is that part of capital which is required to meet the day to day expenses and for holding current assets for the normal operations of the business. It is referred to as the excess of current assets over current liabilities. The changes in the price levels disturb the working capital position of … Read more

## Backlog Depreciation

Definition of Backlog Depreciation Whenever an asset is revalued, the profit on revaluation is transferred to Revaluation Reserve Account. But, the revaluation also gives rise to a backlog depreciation. This backlog depreciation should be charged to Revaluation Reserve Account. The concept of backlog depreciation can be followed by the help of the below illustration. Formula … Read more

## Calculation of Depreciation Adjustment under Current Cost Accounting Technique

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: And, Depreciation Adjustment = Current year’s depreciation on CCA – Depreciation on … Read more

## Current Cost of Sales Adjustment (COSA)

Definition The CCA technique, cost of sales are to be calculated on the basis of the cost of replacing the goods at the time they are sold. The important principle is that current costs must be matched with current revenues. Sale is current revenue and out of the costs, all operating expenses are current costs. … Read more

## Current Value Accounting Technique

In Current Value Accounting method, all Assets and liabilities are shown in the balance sheet at current values. The value of Nett Assets in the beginning and at the end of the year the difference is known as profit or loss as the case may bc. The determination of current values is not so easy. … Read more

## Replacement Cost Accounting Technique (RCA)

Replacement Cost Accounting Technique (RCA) is an improvement over current purchase power (CPP) as it suffers from the that it does not take into the individual price index related to the particular assets of a company. The RCA technique uses the index directly relevant to the companies individual assets and not the general price index. … Read more

## Merits and Demerits of Inflation Accounting

High inflation results in more profits and high financial difficulties. The dividend and income taxes are paid on increased profit calculated on the basis of historical cost concept. Therefore a change from historical cost concept to price level or inflation accounting is recommended to show the correct profit and true and fair of balance sheet. … Read more

## Effect of Price Level Changes on Financial Statement

The following are the main effects of price level changes on the financial statements. Effect on profit and loss account The change in price level does not affect profit and loss account items such as: wages and salaries, insurance commission, tax etc. are paid on current values. The items which affect profit and loss accounts … Read more

## Limitations of Historical Cost Accounting

Following are some limitations of historical cost accounting: (i) Failure to disclose current worth of the enterprise. The accounts presented on the basis of historical concept do not show many effects which are due to the inflation gap. Thus, the true and fair view is not shown. (ii) Uncomparable items in financial statements. Sometimes due … Read more

## What is dividend policy?

Meanings of Dividend Dividend is the payment to shareholders in lieu of their share capital. It is that portion of profits of a Company which is distributable among its shareholders according to the resolution passed in the meeting of Directors. This may be a fix percentage on the share capital or at fixed per share. … Read more