Inflation Accounting — Meaning, Techniques — Short Note Inflation Accounting — Meaning, Techniques — Short Note Inflation accounting refers to the process of adjusting the financial statements of a company to show the real financial position of the company during inflationary period.
Under IAS 29 rules, financial statements, including comparative past statements, must be expressed in the values of the currency current at the end of the reporting period, with changes tied to the general price index. Furthermore, the gain or loss on the net monetary position must be included in profit or loss for the period and must be separately disclosed.
Companies located in developed countries with relatively stable rates of inflation have no need to apply inflation accounting. In countries with high rates of inflation such as Venezuela, historical information on financial statements will not be relevant, forcing restatements to reflect current values.
Under the CPP method monetary items and nonmonetary items are separated.
The accounting adjustment for monetary items is subject to recording of a net gain or loss. Nonmonetary items those that do not carry a fixed value are updated into figures with a conversion factor equivalent to price index at the end of the period divided by price index at the date of transaction.
Under the CCA, both monetary and nonmonetary items are restated to current values.As a member, you'll also get unlimited access to over 75, lessons in math, English, science, history, and more. Plus, get practice tests, quizzes, and personalized coaching to help you succeed.
In valuation of an inventory, inflation accounting treatment can effect the firm's taxable income, cash position, and reported earnings, depending on whether the firm uses FIFO or LIFO methods.
FIFO method, shows a higher profit, therefore higher tax burden and a decrease in net cash flow. Feb 09, · An applicant's budget request is reviewed for compliance with the governing cost principles and other requirements and policies applicable to the type of recipient and the type of award.
- Definition, Causes & Effects A recession is a general downturn in any economy. A recession is associated with high unemployment, slowing gross domestic product, and high inflation.
Inflation accounting refers to the process of adjusting the financial statements of a company to show the real financial position of the company during inflationary period.. It is a special accounting technique that is used during the period of high inflation.
It requires adjustments in financial statements of a company according to current price index prevalent in the economy.
Inflation may be defined as ‘a sustained upward trend in the general level of prices’ and not the price of only one or two goods. G. Ackley defined inflation as ‘a persistent and appreciable rise in the general level or average of prices’.