Alternative accounting rules under the Companies Act modify the historical-cost convention, allowing for the valuation of certain assets at current or market value.
The cost convention refers to the basis used for recording costs charged against profit during an accounting period, which can be based on historical cost, current cost, or replacement cost.
Current cost refers to a cost calculated to take into account current circumstances of cost and performance levels. It represents the amount required at current prices to purchase or manufacture an asset, possibly adjusted for inflation.
Current-cost depreciation is a depreciation charge calculated on the current cost of an asset rather than its historical cost. It adjusts for changes in the value of assets over time to ensure financial statements reflect more accurate asset values.
Real Terms Accounting (RTA) is a system of accounting where the effects of changing prices are measured by their impact on a company's financial capital, to ensure its value remains constant in real terms. This involves assessing assets at their current cost and defining profit as any surplus after maintaining shareholders' equity.
