# Calculation of Depreciation Adjustment Under the Current Cost Accounting Technique

### Reviewed by Subject Matter Experts

Updated on January 30, 2024

In Current Cost Accounting (CCA), assets are shown in the balance sheet at the current replacement costs after allowing for depreciation.

This also requires an adjustment for depreciation.

## Formula

Use the following formula to calculate the current year's depreciation under CCA

To calculate the depreciation adjustment, the following formula can be used:

Depreciation adjustment = Current year's depreciation on CCA - Depreciation on historical cost

## Example

A machine was purchased on 1 January 2019 at a cost of \$1,000,000. Its useful life was estimated at 10 years.

The machine's replacement cost was \$180,000 on 1 January 2024 and \$2,000,000 on 31 December 2024. Calculate the depreciation adjustment.

## Solution

Current year's depreciation (CCA method) = (180,000 + 2,000,000) / (2 x 10)

= \$190,000

Historical depreciation = 1,000,000 / 10 = \$100,000

Depreciation adjustment = Current year's depreciation on CCA - Historical depreciation

= 190,000 - 100,000

= \$90,0000