Accounting in an Inflationary Environment by R W Scapens

By R W Scapens

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30 on 31 December 19X2 is equivalent to an outlay of [100 on 1 January 19X1. 30 on the scales of money values on 31 December 19X1 and 31 December 19X2, respectively. 3/100 for restatement at 31 December 19X2 money values. Monetary amounts at other dates mayaiso be restated in terms of 31 December 19XI or 31 December 19X2 money values by reference to the appropriate index numbers. This restatement of monetary amounts in terms of the money unit of a particular date enables valid aggregations and comparisons of the res ta ted amounts, as all the transactions are measured against a stable measurement scale - money of a constant purchasing power.

It will be assumed that the index movement to 30 September 19X4 is three-quarters of the annual movement. 5. As the inventory is assumed to have been acquired evenly throughout the last three months of 19X4 the average price change for that period will be used. 25. This is equivalent to assuming that the inveritory was acquired on average half-way through the last three months of 19X4. 19X4). The monetary amount ofthese items represents the claims, etc. outstanding on 31 December 19X4. The share capital was issued on I January 19X4.

Similarly, a consumer price index will include the effects of changes in the relative prices of consumer and producer goods. Accordingly restatements based on consumer price index numbers are not strictly accounting for inflation - nevertheless they are accounting in terms ofconstant (or current) purchasing power. However, it is likely that at the aggregate leyel and in the long run the prices of consumer goods will change in line with the prices of producer goods, as the latter are a component of the former; but there may be a time lag before changes in the prices of producer goods work through to consumer price changes.

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