A company purchased a machinery on 01-01-2015 for a sum of Rs. 60,000. The retail price index on the…
Under the Current Purchasing Power (CPP) method of inflation accounting, historical figures are restated in terms of current purchasing power using a general price index:…
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A company purchased a machinery on 01-01-2015 for a sum of Rs. 60,000. The retail price index on the date was 150. What is the value of machinery according to CPP method on 31 December 2015 when the price index was 200?
Answer and explanation
Correct answer C
Under the Current Purchasing Power (CPP) method of inflation accounting, historical figures are restated in terms of current purchasing power using a general price index: Restated Value = Historical Cost * (Current Price Index / Price Index at Date of Acquisition). Thus, Value = Rs. 60,000 * (200 / 150) = Rs. 80,000.
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UGC NET Commerce