Current cost accounting

This article analyses the accounts of some 250 major companies, prepared according to current cost and historic cost conventions, for the last three years.

Historic cost accounting generally overstates profitability-the average current cost pre-tax return on capital is around half the historic cost figure. Industries most affected are textiles, motors, paper and packaging and chemicals, while construction, engineering contracting and retailing are least affected. Post-tax returns on equity are reduced even more using current cost accounting.

Around half the companies studied have paid dividends that were not fully covered by current cost profits.

Current cost accounting