(a) Outline the problems with historical cost accounting. (You may find it helpful to refer back to Chapter 4 as well as Chapter 12.)

(b) Mystron Products has prepared its Trading Account for its first year of trading in traditional historical cost terms, and this is set out below.

Sales and purchases were made steadily throughout the year. General inflation ran at 10% through the year. The closing inventory consisted of the same physical amount of inventory, and could have been bought for about £65,000 in average price terms.
Restate the Trading account on a current cost accounting (CCA) basis.

(c) Which of the profits, the historical cost figure of £140,000 or the CCA figure you have calculated, gives the most true and fair view of Mystron Products’ trading activities for the year? Justify your decision.

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Sales 400,000 Purchases 340,000 Closing inventory 80,000 260,000 Gross profit 140,000