Current purchasing power Accounting - Management Duniya

Current purchasing power Accounting

Current purchasing power Accounting:

In CPP accounting the historical cost accounting data are adjusted on the basis of any established & approved general price index at a given date. In India wholesale price index of the reserve bank of India can be taken which shows the change in the value of the rupee in the past years. This method takes in to consideration the changes in the value of items as a result of the general price level. But it does not account for changes in the value of individual items. The formula for the conversion of historical cost to the general price level is as follows.

Conversion Factor: Current Price Index / Previous price index at the rate of existing figure.

The formula for calculated converted figures

Converted figure = Historical Figure x conversion factor (or)

                      Historical Figure x Current year Index/ Previous year Index at the date of Existing figure

A Building was purchased in 1982 at a price of Rs. 180000 the general price index at that time was 150. Convert the figure in current rupees on 31-12-2012. Where the index stood at 300. Click here for solution

Source: A/c Books & Notes

Tags: Account, accountant, accounting, Assets, Capital, Cost, Credit, creditor, debit, debtor, expenses, finance, historical cost, income, Income statement, liabilities, Loss, Management, Profit, Profit and Loss, Ratio, revenue, sales, volume
By: Management Duniya