The historical cost accounts of Smith plc are as follows:

Statement of financial position of Smith plc as at 31 December 20X8

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 quarter of the year.

4 RPI numbers were:

Average for 20X0 ...... 120

20X7 last quarter ...... 216

At 31 December 20X7 ..... 220

20X8 last quarter ....... 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 statement of comprehensive income for the current year in terms of £CPP at the year-end.

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

(c) Restate the opening statement of financial position 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.

Transcribed Image Text:

Smith plc Statement of comprehensive income for the year ended 31 December 20x8 £000 £000 Sales 2,000 Cost of sales: Opening inventory I January 20X8 320 Purchases 1,680 2,000 Closing inventory at 31 December 20X8 280 1,720 Gross profit Depreciation Administration expenses 280 20 100 120 Net profit 160