Changes the definition of price
1. Typically occurs when the price changes in the average price of all goods and services in an economy subject to change. Monetary units gain or a loss of purchasing power. Price increases are collectively known as inflation. While the price reductions referred to as deplasi.
2. Specific price changes refers to changes in the price of goods or services which are caused by changes in demand and supply.
Why have the potential for misleading financial statements during the period of price changes?
During periods of inflation, asset values go down by the cost of initial acquisition reflects its current value (which is more Cleaner). Diyatakan asset values lower yield lower rated load and rated higher profits. From the management point of view, this inaccuracy distorts, (1) financial projections based on historical time data, (2) the budget is the basis of performance measurement, and (3) performance data can not isolate the effect of inflation that can not be controlled. It creates a profit:
• An increase in the proportion of tax
• Request for more dividends of shareholders
• Request and pay higher wages than workers
• Actions that harm from the host country
And if the company has distributed its profits then most likely the company can not do the replacement of certain assets has increased the price because they lack resources.
Financial statements are not adjusted to purchasing power will also affect the readers of financial statements in interpreting and comparing the operating performance of the company. If revenues are recorded in accordance with the present value of purchasing power, while the cost of purchasing power are recorded at historical earnings will make measurements inaccurate. Konvensioanal accounting procedures also ignore the purchasing power gains and losses arising from cash holdings during the period of inflation.
Inflation Accounting terms
Inflation is a process of rising prices in general and persistent (continuous) associated with the market mechanism can be caused by various factors, among others, increased consumption or a lack of launch distribution of goods. In other words, inflation is also a process of declining currency value continuously. Inflation is the process of an event, rather than the high-low price levels.
Accounting methods used in the method of determination of inflation = profits. The emphasis is on the determination of the profits return more relevant is illustrated by the financial statements, while the inflation value of all items contained in the financial statements. To prepare financial statements in the period of inflation to be more relevant to use several methods.
According to Johnson, the 1977 method of measurement of assets and liabilities can be divided as follows:
1. The entry value of the common price system consisting of:
General price level
In the method for example GPL historical cost method adjusted for changes in price levels during inflation so that the GPL is greater than the value of historical cost.
GPLA advantages are:
a. May explain the effect of inflation on the company.
b. Improve the usefulness of comparative reports between periods.
c. Help users assess the statement of cash flows to be dating ddimasa better.
d. Improve the confidence level of financial statement ratios are calculated from
the figures that have been customized financial reports.
The disadvantage is:
a. Inflation was terrjadi on different goods and different companies, so it can not be generalized.
b. GPLA not significant for the company.
c. Figures are not adjusted to describe the cash flow.
d. It is a crude indicator ratios.
Is the value measured at this time to get new assets or replace it with the same production capacity. Depreciation is calculated based on the value of changing it. On the value of the replacement value of inflation is greater than the general price level. This method is widely criticized, but some people think that this method is the easiest method is applied in accounting for inflation
Is another term that is almost equal to the replacement cost. Here the price is measured based on the current price if the asset was created or published as what belongs to it without looking at the technological changes that made it possible mempengaruhiaktiva.
2. The exit value or current market pricing system that consists of market value:
Net realizable value
NRV is the estimated selling price less selling costs. Depreciation is calculated on the difference between the asset’s sale price at the beginning than at the end of the period.
selling price less cost of sales so that no financial statements prepared according to the selling price will be greater than the net realizable value and the other methods mentioned earlier.
This method is highly dependent on one’s expectations can be larger or smaller than other methods because the expected value is an overview of the present value of cash in the future.
Differences in current cost accounting model and the conventional
Differences in the cost accounting model and the conventional current Historical Cost Financial Statements Statements of Financial Position:
1. Amount in the statement of financial position are not expressed in the units of measurement are now at the end of the reporting period, are restated by applying a general price index.
2. Items of monetary restated because they are expressed in monetary units is now at the end of the reporting period. Monetary posts are owned and the money to be received or paid in cash.
3. Assets and liabilities, with the agreement, which is connected with changes in prices such as index linked bonds and loans, adjusted in accordance with the agreement to ensure the balance at the end of the reporting period. The posts are recorded at amounts have been adjusted in the statement of financial position are restated.
4. All assets and other liabilities are nonmonetary. Some noted the number of non-monetary post is now at the end of the reporting period, such as net realizable value and fair value, then the post is not restated. All assets and liabilities to other non-monetary restated.
5. Most of the non-monetary items carried at cost or cost less depreciation. Therefore, these items are stated at the amount present on the date of acquisition. Acquisition cost, or cost less depreciation, which are presented back to each item is determined by applying the change in the general price index from the date of acquisition until the end of the reporting period on a historical cost and accumulated depreciation. For example, fixed assets, inventories of raw materials and merchandise, goodwill, patents, trademarks and similar assets are restated from the date of purchase. Supply of intermediate goods and finished goods are restated from the date of the purchase cost and conversion costs.
6. Detailed record of the date of acquisition of units of fixed assets may not be available or can not be estimated. In rare circumstances, it may be necessary, in the first period to implement this statement, to use an independent professional assessment of the value of such units as the basis for the presentation of the return.
7. General price index may not be available for a period of time restate fixed assets required by this Statement. Under these circumstances, an entity may need to use the basic estimates, for example, the transfer rate between the functional currency and foreign currencies are relatively stable.
8. Some noted the number of non-monetary post is now on a date other than the date of acquisition or date of statement of financial position, for example, fixed assets have been revalued in the previous date. In this case, the carrying amount restated from the date of revaluation.
9. Restated amounts of non-monetary items is reduced, in accordance with relevant GAAP, when the amount exceeds the recoverable amount. For example, the amount of fixed assets, goodwill, patents and trademarks presented again reduced to recoverable amount and restated amount of inventory reduced to net realizable value.
10. Investee is recorded using the equity method may make a report in the currency hyperinflation economy. Statement of financial position and reports comprehensive income of the investee are restated in accordance with this Statement for the investor counting on net assets and profit and loss. When the financial statements of the investee are restated denominated in foreign currencies, the financial statements are translated at the closing exchange rate.
Types of inflation adjustment
Statistical series that measure changes in both general and specific price rates generally do not move in parallel. Any type of price changes have different effects on measures of financial position and operating performance of a company and caused by the presence of different-sized ukuan hidden.
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