A short presentation about inflation accounting covering broad aspects and summary.

1. INFLATION ACCOUNTING
WHY? WHAT? HOW?

2. ISN’T FINANCIAL ACCOUNTING SUFFICENT?
No, it has got Inherent Limitations.
COST CONCEPT

3. WHAT IS INFLATION ACCOUNTING?
A Accounting method
FS are prepared
according to
current price index
Price level accounting

4. HOW?
 IAS 29 of International Financial Reporting Standards [IFRS] is the guide for entities whose currency is a
currency of ‘Hyperinflationary Economy.’
 Hyperinflationary Economy- Prices, interest, and wages linked to a price index rising 100% or more
cumulatively over three years.
 Methods-
1. Current Purchasing Power
2. Current Cost Accounting

5. CURRENT PURCHASING POWER
Financial items
Monetary
Net gain or loss
Non- Monetary Converted to
CPI

6. CURRENT COST ACCOUNTING
Was applied
during Great
Depression
Balance to be
adjusted in
accordance
with Capital
All assets
recorded at
their FMV

7. PROS-
 True and Fair view
 Better Financial Management
 Realistic Breakdown of profitability
 Maintain Capital Adequacy
 Reduction in scams and Fraudulent Financial reporting.

8. CONS-
 No Effective Depreciation.
 Inconsistency in financial reporting due to subjectivity.
 Lack of Intra and Inter Firm comparability.
 Over valuation issues.
 Effects of sudden Macro Economic factors.
 Difficulty for users of FS to comprehend financial position.

9. APPLICATION
• Entity operating in a Hyperinflationary economy.
• Drastic Macro Economic Changes.
• For making realistic financial decisions.

10. THANK YOU!
VARAD RATHI 1912043
2 B.COM [F&A] ’A’