Accounting for Price-Level Changes—Theory and Procedures. by R. S. Gynther

By R. S. Gynther

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Extra resources for Accounting for Price-Level Changes—Theory and Procedures. Pergamon International Library of Science, Technology, Engineering and Social...

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Xi of Accounting Research Study N o . 6 this is said: T h e effects of price-level changes should b e disclosed as a supplement t o the conventional statements. ^^ 'American A c c o u n t i n g Association, 1956, 199 p p . , p . 145. •American Accounting Association, 1956, 28 p p . , p . 13. ^^Reporting the Financial Effects of Price-level Changes, 36 Accounting for Price-level Changes—Theory and Procedures During and after a proposed transition period, it is visualized that statements in both current and historical costs will be prepared.

It renders possible an assessment of net worth which is nearer the true state of aff'airs than c a n b e derived as a result of accounting for fixed asset values o n the formalized basis o f historical cost. , p . ^ «ö«Gee & C o . , L o n d o n , 149 p p . Statements by Professional Bodies 31 of rates o f profit against net worth. It avoids the distorted profit t o net worth ratios which recurrently give rise t o misgiving amongst consumers and which frequently hamstring wage n e g o t i a t i o n s .

That is, the firm is better off by $500 cash. Should not the profit figure therefore be only $500 and not $1(X)0? In this case the cost of the sale was under-charged by adhering to the original historical costs. Example i . A company starts off the period with a capital of $10,000, all of which is invested in 6% debentures as the time is not yet ripe for the company to proceed with its intended operations. Conventional accounting will show a profit of $600 (interest) at the end of the period whether price levels in the 18 Accounting for Price-level Changes—Theory and Procedures company's intended field remain constant, rise, or fall.

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