ROCE and historical cost accounting

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,
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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