The historical cost accounts of Smith plc are as follows:

Notes 1 Land and buildings were acquired in 20X0 with the buildings component costing £800,000 and depreciated over 40 years.
2 Share capital was issued in 20X0.
3 Closing inventories were acquired in the last quar ter of the year.
4 RPI numbers were:
Average for 20X0 120 20X7 last quar ter 216 At 31 December 20X7 220 20X8 last quar ter 232 Average for 20X8 228 At 31 December 20X8 236 Required:
(i) Explain the basic concept of the CPP accounting system.
(ii) Prepare CPP accounts for Smith plc for the year ended 20X8.
The following steps will assist in preparing the CPP accounts:

(a) Restate the income statement for the current year in terms of £CPP at the year-end.

(b) Restate the closing balance sheet in £CPP at year-end, but excluding monetary items, i.e.
trade receivables, trade payables, cash at bank.

(c) Restate the opening balance sheet in £CPP at year-end, but including monetary items, i.e.
trade receivables, trade payables and cash at bank, and showing equity as the balancing figure.

(d) Compare the opening and closing equity figures derived in

(b) and

(c) above to arrive at the total profit/loss for the year in CPP terms. Compare this figure with the CPP profit calculated in

(a) above to determine the monetary gain or monetary loss.

(e) Reconcile monetary gains/loss in

(d) with the increase/decrease in net monetary items during the year expressed in £CPP compared with the increase/decrease expressed in £HC.

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Sales Smith plc Income statement for the year ended 31 December 20X8 000 000 2,000 Cost of sales: Opening inventory | January 20X8 Purchases 320 1,680 2,000 Closing inventory at 31 December 20X8 280 1,720 Gross profit 280 Depreciation 20 20 Administration expenses Net profit 100 120 160