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    Inflation Accounting

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    Kunal Modi
    Inflation accounting aims to correct problems arising from historical cost accounting in periods of high inflation. It involves adjusting financial statements for changes in the general price level. There are two main methods - the current purchasing power method which uses a general price index to convert historical figures, and the current cost accounting method which adjusts for changes in specific asset prices. The current purchasing power method involves multiplying historical costs by the price index at the end of the period and dividing by the original transaction index.

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    Inflation Accounting

    Uploaded by

    Kunal Modi
    503 views10 pages
    Inflation accounting aims to correct problems arising from historical cost accounting in periods of high inflation. It involves adjusting financial statements for changes in the general price level. There are two main methods - the current purchasing power method which uses a general price index to convert historical figures, and the current cost accounting method which adjusts for changes in specific asset prices. The current purchasing power method involves multiplying historical costs by the price index at the end of the period and dividing by the original transaction index.

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    Inflation accounting aims to correct problems arising from historical cost accounting in periods of high inflation. It involves adjusting financial statements for changes in the general price level. There are two main methods - the current purchasing power method which uses a general price index to convert historical figures, and the current cost accounting method which adjusts for changes in specific asset prices. The current purchasing power method involves multiplying historical costs by the price index at the end of the period and dividing by the original transaction index.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    503 views10 pages

    Inflation Accounting

    Uploaded by

    Kunal Modi
    Inflation accounting aims to correct problems arising from historical cost accounting in periods of high inflation. It involves adjusting financial statements for changes in the general price level. There are two main methods - the current purchasing power method which uses a general price index to convert historical figures, and the current cost accounting method which adjusts for changes in specific asset prices. The current purchasing power method involves multiplying historical costs by the price index at the end of the period and dividing by the original transaction index.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
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    INFLATION ACCOUNTING

    Objective of Accounting
    Preparation of financial statements Financial position of the co. To keep systematic records To ascertain profit or loss

    Inflation

    Inflation refers to state of continuous rise in prices. It brings downward changes in the purchasing power of monetary unit.

    Inflation Accounting
    Inflation accounting is a term describing a range of accounting systems designed to correct problems arising from historical cost accounting in the presence of inflation Inflation accounting is used in countries experiencing high inflation or hyperinflation

    Methods of Accounting for price level changes:


    1.Current Purchasing Power (CPP) method, based on changes in general price level changes

    2. Current Cost Accounting (CCA) method, based on changes in prices of specific assets.

    Current Purchasing Power (CPP)


    Method of inflation accounting seeks to use general purchasing power price of money rather than specific indices to convert the historical figures into relevant figures of purchasing power for the end of the period in review. In simple terms, the conversion process of historical figures into CPP figures involves two steps: Multiplying the Historical Cost figures by the price index at the end of the period; Dividing the figures obtained in Step (i) above by the index which existed at the date of original transaction. e.g. : Historical Cost figures

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