Question：Which of the following is an advantage of current cost accounting (CCA)?
A. It uses objective calculations to arrive at a deprival value for assets.
B. It provides a useful guide for management in deciding whether to hold or sell assets.
C. It is easy to calculate and understand.
D. It produces a reliable value for total assets.
The correct answer is: B
An advantage of CCA is that it provides a useful guide for management in deciding whether to hold or sell assets. However this is not the focus of CCA, which is to provide a reasonable means of incorporating the effect of inflation in a company's financial accounts.
CCA uses subjective calculations to arrive at a deprival value for non-current assets. Calculation of economic value and net realisable value are based on estimates.
CCA uses a number of different asset valuation methods, namely replacement cost, economic cost and net realisable value. Grouping together assets valued by different methods does not give a particularly meaningful total figure.
By using a number of different asset valuation methods CCA is not that easy to calculate or understand.
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