Question 1

Section A

Apex Consultancy, a service firm, is reviewing its IT software costs over a three-year period. The cost index for software was 120 in Year 1 and 156 in Year 3. If the actual software expenditure in Year 1 was $45,000, what is the equivalent Year 1 expenditure expressed in Year 3 prices?

Accepted Answer

To adjust a historical cost to current prices using index numbers, multiply the historical cost by the ratio of the current index to the historical index: Cost * (Index_Current / Index_Base).

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Applying the index ratio upside down (120/156).

Section A

Apex Consultancy, a service firm, is reviewing its IT software costs over a three-year period. The cost index for software was 120 in Year 1 and 156 in Year 3. If the actual software expenditure in Year 1 was $45,000, what is the equivalent Year 1 expenditure expressed in Year 3 prices?

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA MA — Management Accounting Practice Exam 3

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