Historical Cost And Nominal Dollar Case Study

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Historical Cost (Nominal Dollar)
• Actual Purchase Cost.
• Original purchase or sale price.
• No adjustment for general or specific prices changes.

Nominal Dollar
• Historical cost.
• Actual purchase price.
• Not adjusted for changes in dollar value.
• No Fair value or CPI adjustments.

Current Cost
• Current purchase price.
• Includes specific price changes.
• Is stated at Lower of:
• Current Cost (Fair value).
• Replacement (Recoverable) Cost.
• Gains & Losses (G/L) are recognized.

Current cost Less: Historical cost Unrealized Holding Gain or Loss (G/L) recognized.

Constant Dollar
• Includes general price changes (CPI).
• Historic (nominal) or Current cost is adjusted for inflation.
• Monetary Asset & Liabilities …show more content…
Constant Dollar Less: Historical cost Inflation factor

Accounting for Changing Prices

Pricing Measurements
1. Historical Cost/Nominal Dollar
2. Historical Cost/Constant Dollar
3. Current Cost/Nominal Dollar
4. Current Cost/Constant Dollar

Historical Cost/Nominal Dollar
• Includes No specific or general price changes.
• Historical cost is NOT adjusted to:
• Current Cost.
• Or, Constant Dollar.
• No Purchasing Power G/L recognized.
• Example:
• Historic Bldg. Cost $10,000 is reported as $10,000.

Historical Cost/Constant Dollar
• Includes General price level changes (CPI).
• Historical cost is adjusted for general price level changes (CPI).
• Monetary Assets & Liabilities
• Not restated.
• Unrealized G/L recognized.
• Nonmonetary Assets & Liabilities
• Restated.
• Unrealized G/L NOT recognized.
• Disclosure example
• Historic: Bldg. Cost $10,000 is reported as $10,000.
• Constant $: Bldg. Cost: $11,000 (10,000 * 1.10 CPI)
• G/L recognized: NONE
• Inflationary factor: $1,000 Constant Dollar $ 11,000 Less: Historical cost - 10,000 Inflation factor $ …show more content…
Current Cost/Constant $ Yes Yes Current value adjusted for CPI & FMV.

Accounting for Changing Prices

Reporting example - Current Cost

Income Statement 3,000 Sales Units x Current - Unit Cost $65 = Sales @ Current Cost $195,000 3,000 Sales Units x Avg – Current - Unit Cost $115 = Sales @ Current Cost $345,000

COGS $2,000 x Avg – Current - Unit Cost $115 = COGS @ Current Cost $230,000

Avg – Current - Unit Cost $115 = (Beg $110 + Endg $120) 2 periods - Beg. & Endg.
Balance Sheet
• Appreciable Assets are stated at Current Cost.

• Depreciable Assets are an average of current cost and purchase price:

Purchase Price $335 + Current Cost $355 = Depreciable Basis $345,000 2 periods - Beg. & Endg.

Depreciable Basis ($345,000) = Depreciation Exp $69,000 Useful Life (5 yrs)

• Inventory:

End’g QOH 70 x Current - Unit Cost $61 = E – Inventory $4,270

Reporting example - Constant Dollar

Income Statement • Sales Units 3,000 x CPI – Current $130 = Sales @ constant $ $3,250 CPI – Avg
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