Current cost accounting

Current cost accounting attempts to provide more realistic book values by valuing assets at current replacement cost, rather than the amount actually paid for them. This contrasts with the usual historical cost approach.

The current cost is usually calculated by adjusting the historical cost for inflation, in addition to the usual adjustments such as depreciation.

Current cost accounting is more complex than historical cost accounting, and attempts to implement it tend to create controversy over what adjustments are appropriate. This has some interesting comments on the reasons for the failure of attempts at inflation accounting.

The problems that current cost accounting (and other approaches to accounting for inflation) attempt to solve are obviously linked to inflation. Interest in inflation accounting tends to be greatest when inflation is high, and low when inflation is low.

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