The finance director of Toy plc has been asked by a shareholder to explain items that appear in the current cost income statement for the year ended 31.8.20X9 and the balance sheet as at that date:

Required:

(a) Explain what each of the items numbered 1–6 represents and the purpose of each.

(b) What do you consider to be the benefits to users of providing current cost information?

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Historical cost profit 143,000 Cost of sales adjustment (I) 10,000 Additional depreciation (2) 6,000 Monetary working capital adjustment (3) 2,500 18,500 Current cost operating profit before tax 124,500 Gearing adjustment (4) 2,600 CCA operating profit 127,100 Non-current assets at gross replacement cost 428,250 Accumulated current cost depreciation (5) (95,650) 332,600 Net current assets 121,400 12% debentures (58,000) 396,000 Issued share capital 250,000 Current cost reserve (6) 75,000 Retained earnings 71,000 396,000