1 / 10

A.BHUVANESHWARI Assistant Professor in commerce Department Of Commerce

A.BHUVANESHWARI Assistant Professor in commerce Department Of Commerce ADVANCED CORPORATE ACCOUTNING Inflation Accounting (Even Semester 2018 -2019).

monsen
Download Presentation

A.BHUVANESHWARI Assistant Professor in commerce Department Of Commerce

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. A.BHUVANESHWARI Assistant Professor in commerce Department Of Commerce ADVANCED CORPORATE ACCOUTNING Inflation Accounting (Even Semester 2018 -2019)

  2. Inflation accounting is a special accounting technique that can be used during periods of high inflation whereby financial statements are adjusted according to price indexes, rather than relying solely on a cost accounting basis.

  3. Since assets are shown at current values, Balance Sheet exhibits a fair view of the financial position of a firm. Depreciation is calculated on the value of assets to the business and not on their historical cost—a correct method. It facilitates easy replacement. Merits of Inflation Accounting

  4. Profit and Loss Account will not overstate business income. Inflation accounting shows current profit based on current prices. Profit or loss is determined by matching the cost and the revenue at current values which are comparable—a realistic assessment of performance. Financial ratios based on figures, adjusted to current value, are more meaningful. Inflation accounting gives correct information, based on current price to the workers and shareholders. In the absence of this, workers may claim for higher wages and shareholders too claim for higher dividends.

  5. The system is not acceptable to Income tax authorities. Too much calculations make complications. Changes in prices are a never ending process. The amount of depreciation will be lower in times of deflation. The profit calculated on the system of price level accounting may not be a realistic profit. Demerits of Inflation Accounting:

  6. Current Cost Accounting Method Current Purchasing Power Method Hybrid Method Methods of Inflation Accounting

  7. Some Important Adjustments Required under the CCA Technique: • Current Cost of Sales Adjustment (COSA) • Backlog Depreciation • Monetary Working Capital Adjustment (MWCA) • Gearing Adjustment Current Cost Accounting Method

  8. For current purchases—the average index of the year. For opening stock—the index at the beginning of the year. For purchases of previous year—the average index of the relevant year. Current Purchasing Power Method

  9. Combination of CCA Method and CPP Method Hybrid Method

More Related