Inflation Accounting

Question 1

Is accounting for the effects of changing prices mandatory?

Answer 1

No, it is optional.

Question 2

What is an asset or liability whose value is fixed in monetary terms?

Answer 2

A monetary item

Examples include:
Cash
Accounts and notes receivable
Prepaid expenses
Accounts, notes, and bonds payable

Question 3

What is a monetary item?

Answer 3

An asset or liability whose value is fixed in monetary terms

Question 4

What is an asset or liability that does not guarantee a fixed amount of money being received or paid?

Answer 4

A non-monetary item

Examples include:
Inventories
Plant and Equipment
Intangibles
Marketable Securities

Question 5

What is a non-monetary item?

Answer 5

An asset or liability that does not guarantee a fixed amount of money being received or paid

Question 6

Does inflation adversely or positively impact monetary assets?

Answer 6

Adversely, so a purchasing power LOSS

Question 7

Does inflation adversely or positively impact monetary liabilities?

Answer 7

Positively, so a purchasing power GAIN

Question 8

Does inflation adversely or positively impact non-monetary assets?

Answer 8

Positively, so a purchasing power GAIN

Question 9

Does inflation adversely or positively impact non-monetary liabilities?

Answer 9

Adversely, so a purchasing power LOSS

Question 10

Should a company wish to disclose information about the effects of changing prices, where would they report this information?

Answer 10

Supplementary information to the financial statements