Current cost is a departure from historical cost.

 Goal: for the income statement; to measure the cost of inputs at their current replacement cost at the time they were sold or used and to measure revenues at the current cost at the time they were received. For the balance sheet, to measure assets at the current replacement cost at the balance sheet date

 In the simplest case, there will be four accounts affected by the application of current cost procedures:

 Income Statement:

 Cost of goods sold
Depreciation expense

 Current cost of goods sold is calculated by multiplying the units sold by the average replacement cost of the inventory during the period. The average replacement cost can be as simple as the beginning replacement cost + the ending replacement cost divided by two.

 Depreciation expense measured on a current cost basis is similar to the above: Beginning replacement cost of pant and equipment plus ending replacement cost of plant and equipment divided by two, resulting in the average replacement cost of plant and equipment. Multiply the average replacement cost by the depreciation rate per year. The result is the Depreciation expense on a current cost basis.

 Balance Sheet:

 Inventories
Property Plant and Equipment

 Current cost of inventories: on the balance sheet is determined by multiplying the number of units on hand by the replacement cost on the balance sheet date.

 Current cost of Plant and Equipment: is the cost to replace the Plant and Equipment at the balance sheet date, reduced for the amount of depreciation that would have been taken on the replacement cost. The result is the net plant and equipment on a current cost basis

 Holding Gains and Losses

Two types of Holding Gains or Losses

 Realized

 Unrealized

 Realized holding gains or losses result from either selling or using assets.

 In the case of inventories, the realized holding gain or loss is determined by the difference between the current cost of goods sold and the historical cost of goods sold. In the case od plant assets, the realized holding gain or loss id determined by

(1) the difference between the depreciation expense based on average replacement cost and depreciation based on historical cost; (this amount is the realized holding gain/loss from using the asset)

and

(2) the difference between the current cost of any plant assets sold its undepreciated historical cost. (this amount is the realized holding gain/loss ocurring if a plant asset is sold.)

Combine (1) and (2) for the total realized holding gain/loss.
 

 Unrealized holding gains or losses result from assets still on hand at the balance sheet date. The general formula is:

 EOY net current cost - EOY net historical cost = unrealized holding gain or loss in ending asset

 BOY net current cost - BOY net historical cost = unrealized holding gain or loss in beginning asset

 Subtract the BOY unrealized holding gain from EOY unrealized holding gain to determine the amount of unrealized holding gain for the year.