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ROCE and historical cost accounting

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › ROCE and historical cost accounting

  • This topic has 2 replies, 2 voices, and was last updated 2 months ago by alawi sayed.
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  • Author
    Posts
  • May 30, 2022 at 8:09 pm #656905
    alawi sayed
    • Topics: 138
    • Replies: 149
    • ☆☆☆

    Hello Sir,

    I am not understanding how using historical cost accounting instead of current value accounting in time of rising prices the ROCE will be understated,

    Can please help Sir,

    Thanks,
    ———————————–

    Q

    Trasten Co operates in an emerging market with a fast-growing economy where prices increase frequently.

    Which TWO of the following statements are true when using historical cost accounting compared to current value accounting in this type of market?

    1Capital employed which is calculated using historical costs is understated compared to current value capital employed

    2Historical cost profits are overstated in comparison to current value profits

    3Capital employed which is calculated using historical costs is overstated compared to current value capital employed

    4Historical cost profits are understated in comparison to current value profits

    Answer
    1 & 2

    May 31, 2022 at 9:02 pm #657011
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6165
    • ☆☆☆☆☆

    I’m a bit confused with you mentioning ROCE as it does not appear with the question itself. Am I missing something? Do you just mean capital employed?

    Thanks

    June 4, 2022 at 8:47 pm #657386
    alawi sayed
    • Topics: 138
    • Replies: 149
    • ☆☆☆

    Hello Sir,

    Yes thats why I am confused because I am thinking of ROCE not capital employed only.

    Thanks for clarification.

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