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INFLATION
DEFLATION
CPP technique of accounting requires the companies to keep their financial statements on historical cost basis but it further requires presentation of statements in terms of current purchasing power of currency. The financial statements are adjusted with the help of recognized General Price Index.
EXAMPLE:A building was purchased in 2000 at a price of Rs 80,000.The general price index at that time was 150,convert the figure in current rupees on 31-12-2010 when the index stood at 300.
B) Mid period conversions: For conversion of such items average index of the year can be taken . C) Monetary and Non monetary accounts:-
A) for current purchases- the average index of the year B) For opening stock-the index at the beginning of the year C) for purchases of previous year:-the average index of the relevant year.
From the information given below ascertain the cost of sales and closing inventory under CPP method if (i) LIFO and (ii) FIFO Inventory on 1-1-2007 20,000 Purchases during 2007 1,00,000 Inventory on 31-12-2007 30,000 GPI:On 1.1.2007 160 Average for the year 180 On 31-12-2007 200