Sandilands Committee Inflation Accounting Method
The Sandilands Committee, established in the UK, specifically addressed methods for accounting under conditions of changing price levels.
The committee proposed the Current Cost Accounting (CCA) Method as the primary approach to inflation accounting.
CCA focuses on revaluing assets based on their current values and calculating profits after accounting for the cost of replacing used assets. This contrasts with methods that only adjust for general inflation or specific price changes without fully considering asset replacement costs.
Why Current Cost Accounting?
- The Sandilands Committee recommended CCA to provide a more realistic view of a company's financial performance and position during periods of inflation.
- It aimed to address the problem of profit erosion and inadequate capital maintenance caused by historical cost accounting in inflationary environments.
Other Methods
- General Price Level Method: Adjusts all historical cost figures using a general price index. This was considered but not preferred by the committee.
- Specific Price Level Method: Adjusts using price indices specific to particular assets or types of assets.
- Generally Accepted Accounting Principles (GAAP): Represents a broader framework of standards, not a specific inflation accounting technique itself.
Therefore, the Current Cost Accounting Method is the specific proposal linked to the Sandilands Committee.
Important Questions from Cost and Management Accounting
The marginal cost curve is ______
A company raises Rs. 1,00,000 by issue of 1000, 10% debentures of Rs. 100 each at a discount of 2% redeemable after 10 years. If the corporate tax rate is 40%, what would be the cost of capital?
1. 6.82%
2. 5.98%
3. 6.18%
4. 5.5%
Which of the following statements are true?
a) Pay - back period method considers all cash flows of a project
b) Pay - back period method concerns more with the recovery of cost than profitability
c) Net Present Value represents net addition to the wealth of shareholders
d) Accounting Rate of Return method incorporates risk as well as time value of money
Choose the correct option from those below.
Match List I with List II
List I
(Type of Costing)
List II
(Description)
A. Marginal Costing I. Integrated approach to determine product features, product price, product costs and product design that helps ensure a company to earn reasonable profit on new products. B. ABC Costing II. The amount of any given volume of output by which the aggregate costs are changed if the volume of output is increased by one unit. C. Target Costing III. Used when identical units are produced through an on-going series of production steps. D. Process Costing IV. Costing system in which costs being with tracing of activities and then to producing the product. Choose the correct answer from the options given below:
Which one of the following is PV ratio for the company?
