Inflation Accounting

In general accounting data are kept on the basis of historical costing. It is assumed that for the accounting purpose monetary unit is stable and constant. This is a fair concept as it checks accounting manipulation. To check this the real financial position should be measured on the basis of current prices. In case when prices are increasing the historical cost will give a misleading result. In the present day, accountant has taken a serious view of the increase in prices. This system of accounting is known as inflation accounting.

Here an effort is made to explain inflation accounting is not a substitute of the historical cost system. Thus, it is an additional system which is followed in addition to traditional system of historical cost accounting.

In general, every organisation costing data are presented on historical costing system and a comparative study is made to see operating result and financial position of two different periods on the basis of actual price. In this chapter various aspects related to inflation accounting are being discussed in detail.

Backlog Depreciation

Definition of Backlog Depreciation Whenever an asset is revalued, the profit on revaluation is transferred to Revaluation Reserve Account. But, the revaluation also gives rise to a backlog depreciation. This backlog depreciation should be charged to Revaluation Reserve Account. The concept of backlog depreciation can be followed by the help of the below illustration. Formula …

Backlog Depreciation Read More »

Calculation of Depreciation Adjustment under Current Cost Accounting Technique

The Current Cost Accounting method assets are shown in the balance sheet on current replacement costs after allowing for depreciation. This will require an adjustment in depreciation too. Formula Current year’s depreciation under CCA can be calculated with the help of following formula: And, Depreciation Adjustment = Current year’s depreciation on CCA – Depreciation on …

Calculation of Depreciation Adjustment under Current Cost Accounting Technique Read More »

Current Purchasing Power Method (C.P.P.)

Definition Current Purchasing Power Method (C.P.P.) is also known as General Price-Level Accounting. This method is recommended by the Accounting Policy Board and also the Financial Accounting Standards Board (FASB) of USA. This method adjusts historical cost for changes in the general level of prices as measured by the general price-level index. Changes in the general …

Current Purchasing Power Method (C.P.P.) Read More »

Inflation Accounting

Definition Inflation is that state of affair when money in circulation is more than the production of commodities and services and purchasing power of money comes down and prices of commodities and services increases. Accounting for changing prices (Inflation Accounting) has become synonymous with accounting for inflation due to the unprecedented pressure of inflationary price …

Inflation Accounting Read More »

Scroll to Top