FINANCIAL REPORTING AND PRICE CHANGES
A. FINANCIAL
STATEMENTS MAY HAVE THE POTENTIAL FOR MISLEADING PRICES DURING THE
PERIOD OF CHANGE
Changes
the definition of price
To understand the
notion of price changes (changing prices), the following terms in use:
A general price changes occur when the average price of all goods and services in an economy subject to change. Price increases are collectively known as inflation (inflation), while the price declines known as deflation (deflation).
A general price changes occur when the average price of all goods and services in an economy subject to change. Price increases are collectively known as inflation (inflation), while the price declines known as deflation (deflation).
Specific price changes
refers to changes in the price of goods or services which are caused by changes
in demand and supply. A stable price level becomes a national priority for
many countries around the world. Although the price changes occur
throughout the world, the influence of business and financial reporting varies
from one country to another.
§ The lack of accuracy of measurement is distorted:
1. Financial projections based on historical time series of data
2. The budget is the basis of performance measurement
3. Performance data can not isolate the effect of inflation that can not be controlled
§ Profit is valued more in turn will lead to:
a) An increase in the proportion of tax
b) Request for more dividends of shareholders
c) Request for salaries and wages higher than the workers. Adverse action of the host country (such as the taxation of a huge advantage).
§ Price Index
a) Changes in the general price level is usually measured by the price level.
b) A price index is the ratio of the cost.
§ The lack of accuracy of measurement is distorted:
1. Financial projections based on historical time series of data
2. The budget is the basis of performance measurement
3. Performance data can not isolate the effect of inflation that can not be controlled
§ Profit is valued more in turn will lead to:
a) An increase in the proportion of tax
b) Request for more dividends of shareholders
c) Request for salaries and wages higher than the workers. Adverse action of the host country (such as the taxation of a huge advantage).
§ Price Index
a) Changes in the general price level is usually measured by the price level.
b) A price index is the ratio of the cost.
The use of price index consists of :
a) The price index number is used to translate the amount of money paid during the previous period to the equivalent purchasing power at the end of the period.
b) Numbers - numbers that have been adjusted price levels do not represent the current cost items in question or the numbers are still the historical cost figures - historical cost figures are presented only repeated in the new measurement unit - the general purchasing power at the end of the period.
§ Objects General Price Level Adjustment
1. Traditionally, profit is part of the company's assets that could be drawn by the company during an accounting period without reducing his wealth to below the starting position.
2. Conventional accounting measure of profit as the maximum amount that can be drawn from the company without reducing the amount of money into capital initially.
3. During inflation, the company will experience a change in wealth that is not related to operating activities which generally arises from changes in assets or liabilities.
a) The price index number is used to translate the amount of money paid during the previous period to the equivalent purchasing power at the end of the period.
b) Numbers - numbers that have been adjusted price levels do not represent the current cost items in question or the numbers are still the historical cost figures - historical cost figures are presented only repeated in the new measurement unit - the general purchasing power at the end of the period.
§ Objects General Price Level Adjustment
1. Traditionally, profit is part of the company's assets that could be drawn by the company during an accounting period without reducing his wealth to below the starting position.
2. Conventional accounting measure of profit as the maximum amount that can be drawn from the company without reducing the amount of money into capital initially.
3. During inflation, the company will experience a change in wealth that is not related to operating activities which generally arises from changes in assets or liabilities.
B. INFLATION
ACCOUNTING TERMS AND EFFECT ON PRICE ADJUSTMENT
FINANCIAL STATEMENTS
The method used in
inflation accounting is similar to the method of determination of the profits,
the emphasis adalahpada more value relevant earnings are described by the
financial statements, Whereas, the inflation value of all items contained in
the financial statements. The method of measuring assets and liabilities
can be divided as follows:
1. The entry value of the common price system consisting of:
a. Historical cost;
b. General price level;
c. Replacement cost;
d. Reproduction cost
2. The exit value or current market pricing system that consists of market value:
a. Net realizable value;
b. Selling price;
c. Expexted value.
¥ General Price Level
1. The entry value of the common price system consisting of:
a. Historical cost;
b. General price level;
c. Replacement cost;
d. Reproduction cost
2. The exit value or current market pricing system that consists of market value:
a. Net realizable value;
b. Selling price;
c. Expexted value.
¥ General Price Level
The advantages of using
the General Price Level Adjustment (GPLA) is as follows:
a. 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 in the future better;
d. Improve the confidence level of financial statement ratios are calculated from the figures that have been customized reports.
a. 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 in the future better;
d. Improve the confidence level of financial statement ratios are calculated from the figures that have been customized reports.
In addition to the
advantage or the advantage of course, a method also has drawbacks.As for the
weaknesses of the GPLA is as follows:
a) Inflation occurs on different goods and different companies;
b) GPLA not significant for the company;
c) Figures are not adjusted to describe the cash flow;
d) The ratio is a crude indicator.
¥ Current Cost Accounting
a) Inflation occurs on different goods and different companies;
b) GPLA not significant for the company;
c) Figures are not adjusted to describe the cash flow;
d) The ratio is a crude indicator.
¥ Current Cost Accounting
In this measuring
method assumes that what is needed by managers is how they allocate economic
resources that exist to maximize profit. Therefore we need answers to
three questions:
a. How many assets that must be owned at a specific date.
b. How should the form of assets;
c. How the assets financed.
a. How many assets that must be owned at a specific date.
b. How should the form of assets;
c. How the assets financed.
To make decisions about
the three questions above, then the managers need to formulate expectations
about the future events. Managers often face the problem of whether to
retain an asset or debt or sell or pay for it and how to use or fund company. To
answer this it is proposed the calculation of profit business that has two
components:
a) Current operating profit
a) Current operating profit
Where income in excess
of this component is the present value of the goods or services sold at a price
substantially.
b) The realizable cost saving (Holding Gain)
Profit in this component is the increase in the cost of an asset is still owned today.
b) The realizable cost saving (Holding Gain)
Profit in this component is the increase in the cost of an asset is still owned today.
Current cost five
forms, namely:
a. Replacement cost
a. Replacement cost
Is the measured current
value to obtain new assets or replace it with the same production capacity. This
method has been criticized in terms of:
1) The subjectivity of judgment or estimate of the price.
2) In the case of an asset price decline then it will cause a reduction in charges to the income statement is lower than the load on the historical cost;
3) the general price changes are not reflected in the replacement cost method, as it was for certain assets;
4) It is hard to make comparisons between companies that differ from each other.
b. Reproduction Cost
1) The subjectivity of judgment or estimate of the price.
2) In the case of an asset price decline then it will cause a reduction in charges to the income statement is lower than the load on the historical cost;
3) the general price changes are not reflected in the replacement cost method, as it was for certain assets;
4) It is hard to make comparisons between companies that differ from each other.
b. Reproduction Cost
This method is similar
to the replacement cost.
c. Net realizable value
c. Net realizable value
Which is a method in
which the selling price less the costs of sale. NRV during inflation is
greater than replacement cost because management may not sell the goods without
expecting profit margins general price level. The method of depreciation
is calculated based on the difference in sale price of assets at the beginning
of the period compared to the end of the period.
d. Selling Price
d. Selling Price
In this method the
values used are the selling price less cost of sales so that no financial
statements prepared according to the selling price will be greater than the net
value reliazable and other methods.
e. Expected value
e. Expected value
This method is highly
dependent on the hope that someone can be larger or smaller than the other
methods. This is because these values represent the expected present
value of cash in the future.
C. CURRENT
COST ACCOUNTING MODEL DIFFERENCES AND CONVENTIONAL
In general, the
conventional accounting, financial statements are presented based on the
historical value that assumes that hargaharga (monetary unit) is stable. Conventional
accounting does not recognize the changes in general price levels or changes in
the level of rates. As a consequence, if there is a change in purchasing
power as inflation period, the historical financial statements is economically
irrelevant.
In this period
generally scored higher revenues while fixed assets valued lower. Actually,
there are several methods of accounting on the effect of price changes, such as
accounting fixed price, current value accounting, and general price level
accounting.General price level accounting restatement will hold the components
of financial statements into dollars at the same level of purchasing power, but
did not change the accounting principles used in accounting based on the value
historis.Pada practice, the controversy concerning the relevance of the use of
price level accounting public still continues to this day. Some of
the arguments that support or reject the application of the general price level
accounting will be presented in this article. Similarly, the results of
two studies on the effects of application of the general price level accounting
on the financial statements will be compared to see whether the accounting
adjustments based on the general price level is required.
ü Historical Cost
Financial Statements Statements of Financial Position
1. The amount in the statement of financial position is 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. monetary items are not 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. The 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 other assets and
liabilities are non-monetary. 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 notes on the 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. The 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 non-monetary posts are recorded on the number 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. The amounts are restated from net non-monetary items, 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. The investee are recorded under 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.
11. The effect of inflation is usually recognized in borrowing
costs. It is not appropriate to restate the capital expenditure financed
by borrowing and to capitalize the borrowing costs to compensate for inflation
over the same period. Part of this borrowing costs are recognized as an
expense in the period when the cost occurs.
12. An entity may acquire assets in a deal that allows entities
to defer payment without incurring an explicit interest charge. When an
entity is not practical to determine the amount of interest, then such assets
are restated from the date of payment and not the date of purchase.
13. At the beginning of the first period of application of this,
a component of equity, except retained earnings and revaluation surplus, are
restated using general price index from the date of the equity component is
contributed or appear. Revaluation surplus that arose in previous periods
is eliminated. Balance restated earnings from all other amounts in the
statement of financial position.
14. At the end of the first period and subsequent periods, all
components of equity are restated by applying a general price index from the
beginning of the period or the date of contribution, if more recent. Shift
in owners' equity during the period disclosed in accordance with IAS 1 (revised
2009).
ü Presentation of
Financial Statements. Comprehensive Income Statement
This statement requires
that all items in comprehensive income statement are expressed in units of
measurement are now at the end of the reporting period. Therefore, the
entire amount necessary to implement the changes and display it in the general
price index from the date income and expenses were initially recorded in the
financial statements.
ü Gain or Loss on
Net Monetary Position
In an inflationary period,
if the entity has a monetary assets exceed monetary liabilities, the entity's
purchasing power decreases, and if the entity has a monetary liabilities exceed
monetary assets, then the purchasing power is increasing all the entities
connected to a price level. Monetary position gain or loss is the
difference in net non-monetary assets, and equity items in the comprehensive
income statement are restated and the adjustment of index linked assets and
liabilities. Gains or losses can be estimated using changes in the general
price index to the weighted average over the period of the difference between
monetary assets and monetary liabilities.
Gains or losses net
monetary position is included in the income statement. Adjustments to
assets and liabilities linked to price changes in the agreement) with the
offsetting gain or loss on net monetary position. Income and other
expenses, such as income and interest expense and foreign exchange differences
related to investments or loans, are also associated with the net monetary
position. Although the post is separately disclosed, it can be helpful if
the post is presented along with the gain or loss on net monetary position in
the comprehensive income statement.
ü Financial
Statements Statements of Financial Position Costs Now
Items that are
presented at current cost are not restated because they are expressed in units
of measurement are now at the end of the reporting period.
ü Comprehensive
Income Statement
Comprehensive income
statement using the current cost, before restatement, generally reports costs
are now at the time of the underlying transactions or events. Therefore,
the entire amount is to be presented again in the unit of measurement is now at
the end of the reporting period by using a general price index.
ü Related Figures
Corresponding number in
the previous reporting period, whether based on a historical cost approach or a
current cost approach, are restated using general price index, so the
comparative financial statements are presented in units of measurement are now
at the end of the reporting period. Information disclosed in connection
with previous periods is also expressed in units of measurement are now at the
end of the reporting period. For the purpose of presenting comparative
amounts in the presentation of foreign currency, applied IAS 10 (revised 2010).
ü Consolidated
Financial Statements
The parent entity
financial reports in the currency hyperinflation economy may have subsidiaries
that also make a report in the currency hyperinflation economy. Entity's
financial statements are restated the child's needs by using the general price
index of the country whose currency is reported prior to inclusion in the
consolidated financial statements issued by the parent entity. When a
foreign subsidiary is an entity, then the restated financial statements are
translated at the closing exchange rate. Entity's financial statements
were reported in children who are not hyper-inflation economy currencies are
treated according to Foreign Exchange.
If financial statements
with a different end of the reporting period are consolidated, all monetary and
nonmonetary post need to be restated in the unit of measurement is now on the
consolidated financial statements.
D. INFLATION
ACCOUNTING DIFFERENCES IN THE U.S., ENGLAND, AND BRAZIL
Differences in
inflation accounting in the United States, Britain, Brazil
• State of the United States
• State of the United States
In 1979, the FASB
issued Statement of Financial Accounting Standards / SFAS No.33, entitled
"Financial Reporting and Changing Values" statement requires U.S.
companies that have supply and aktifa still worth more than $ 125 million or
assets of more than $ 1 billion, for the past 5 years trying to make
disclosure of constant purchasing power as the basic framework of the
historical cost basis of measurement for the primary financial statements.
Many users and
compilers of financial information in accordance with SFAS No.33 found that:
a. Double that required disclosure of FASB confusing.
b. Double the cost of preparation of disclosure is too large.
c. Disclosure of purchasing power historical cost is not too useful when compared to the current cost. Finally issued SFAS N0.88 to help companies that reported the effect of statements on the price change and become the starting point of future inflation accounting standards.
a. Double that required disclosure of FASB confusing.
b. Double the cost of preparation of disclosure is too large.
c. Disclosure of purchasing power historical cost is not too useful when compared to the current cost. Finally issued SFAS N0.88 to help companies that reported the effect of statements on the price change and become the starting point of future inflation accounting standards.
Reporting company is
encouraged to disclose the following information for each of the last 5 years:
a) Net sales and other operating income.
b) Income from continuing operations based on current cost basis.
c) gain or loss of purchasing power (monetary) on net monetary items.
d) Increase or decrease the current cost or recoverable amount (the amount of net cash is expected to be recovered through use or sale) is lower than inventory or fixed assets, net of inflation (the general price level changes).
e) Each aggregate foreign currency translation adjustments, based on the present Biya, arising from the consolidation process.
f) Net Assets at the end of the year according to the current cost basis.
g) Earnings per share (from current operations) on the basis of current cost.
h) Dividends per common share.
i) the end of the market price per share of common stock.
j) The Consumer Price Index (Consumer Price Index-CPI) used to measure income from current operations.
a) Net sales and other operating income.
b) Income from continuing operations based on current cost basis.
c) gain or loss of purchasing power (monetary) on net monetary items.
d) Increase or decrease the current cost or recoverable amount (the amount of net cash is expected to be recovered through use or sale) is lower than inventory or fixed assets, net of inflation (the general price level changes).
e) Each aggregate foreign currency translation adjustments, based on the present Biya, arising from the consolidation process.
f) Net Assets at the end of the year according to the current cost basis.
g) Earnings per share (from current operations) on the basis of current cost.
h) Dividends per common share.
i) the end of the market price per share of common stock.
j) The Consumer Price Index (Consumer Price Index-CPI) used to measure income from current operations.
To enhance the
comparability of data, information can be presented in:
a. Equivalent purchasing power of the average (or late), or
b. Dollar base period (1967) are used in calculating the CPI.
a. Equivalent purchasing power of the average (or late), or
b. Dollar base period (1967) are used in calculating the CPI.
SFAS No.88 disclosure
guidelines also include overseas operations included in the consolidated
statements of U.S. companies holding company which, engadopsi dollar as the
functional currency for its foreign operations measure looked at the operations
from the perspective of the parent company's currency.
As a result the
accounts of the operation should be translated into dollars, adjusted for U.S.
inflation. Multinational companies are adopting local currency as the
functional currency for most of its foreign operations in light of the local
currency.
FASB is allowing
companies to use the present re-translation method or adjust to the foreign
inflation and then do a translation into U.S. dollars. Thus, the
adjustment of the data to reflect the current cost inflation index can be based
on the general price level of the U.S. or abroad.
•
State of Britain
UK Accounting Standards
Committee / ACS issued a "Statement of Standard Accounting Practice 16 /
SSAP," Accounting for Costs Now "for a trial period of 3 years in
March 1980. Although SSAP 16 was canceled in 1988, the methodology is recommended
for companies that voluntarily report accounts-their account adjusted for
inflation.
Differences SSAP 16
with SFAS 33 are:
a. If the U.S. standard requires constant cost accounting and now, SSAP 16 only adopt the current cost for external reporting.
b. If the adjustment of U.S. inflation based on the income statement, expense report in the UK now mengwajibkan both income statements and balance sheets are now charged, along with explanatory notes.
a. If the U.S. standard requires constant cost accounting and now, SSAP 16 only adopt the current cost for external reporting.
b. If the adjustment of U.S. inflation based on the income statement, expense report in the UK now mengwajibkan both income statements and balance sheets are now charged, along with explanatory notes.
3 British Standards
allow reporting options:
a) Presenting the accounts as a current cost basis financial statements with supplementary accounts of historical cost.
b) Presenting the accounts of historical cost as the basis of financial statements with supplementary accounts of current cost.
c) Presenting the accounts as a current cost-satuny dilengkanpi account with enough historical cost information.
a) Presenting the accounts as a current cost basis financial statements with supplementary accounts of historical cost.
b) Presenting the accounts of historical cost as the basis of financial statements with supplementary accounts of current cost.
c) Presenting the accounts as a current cost-satuny dilengkanpi account with enough historical cost information.
With treatment of gains
and losses relating to monetary items, FAS 33 menharuskan separate disclosure
for each digit. SSAP 16 mengaharuskan two numbers that both reflect the
influence of specific price changes, namely:
a. Monetary working capital adjustment (Monetary Working Capital Adjustment) / MWCA
a. Monetary working capital adjustment (Monetary Working Capital Adjustment) / MWCA
Acknowledging the
influence of price changes specific to the total amount of working capital used
by the company in its operations.
b. The adjustment mechanism
b. The adjustment mechanism
Allows the effect of
price changes specific to non-monetary assets of the company.
• State of Brazil
• State of Brazil
Although no longer
required the recommended inflation accounting in Brazil today reflects two
groups of reporting options, the Brazilian Corporate Law and Capital Market
Supervisory Commission of Brazil. Inflation adjustment in accordance with
the law firm presenting the accounts re-permanent assets and shareholders'
equity by using a price index which is recognized by the federal government to
measure the local currency devaluation.
Inflation adjustment to
permanent assets and shareholders' equity are presented net of the amount over
that disclosed separately in the profit gain or loss is now as monetary correction.
Price-level adjustments
to equity shareholders are shareholders in the amount of investment which
should grow to awalperiode not tertingla with inflation. Adjustments to
assets permanently smaller than equity adjustments cause loss of purchasing
power that reflects the risk faced by the company on the net monetary assets.
The recommended
inflation accounting in Brazil reflects the two groups reporting options,
namely:
a) The Brazilian Corporate Law
a) The Brazilian Corporate Law
Presenting the accounts
re-permanent assets and shareholders' equity by using a price index which is
recognized by the federal government to measure the local currency devaluation.
b) Commission of the Brazilian Securities and Exchange Commission
b) Commission of the Brazilian Securities and Exchange Commission
Requires that the
method of accounting for companies whose shares are publicly traded must resize
all transactions that occur within a period by using the functional currency.
At the end of the
period, the index prevailing general price level to change the general
purchasing power of the unit to be nominal local currency units. Also:
a. Inventories are categorized as non-monetary assets and re-measured using the functional currency.
b. Items of monetary non-interest bearing with maturities exceeding 90 days are discounted to present value to allocate profits and losses of inflation that occurred in the proper accounting period.
c. Reclassified balance sheet adjustment also to the related items in the income statement.
a. Inventories are categorized as non-monetary assets and re-measured using the functional currency.
b. Items of monetary non-interest bearing with maturities exceeding 90 days are discounted to present value to allocate profits and losses of inflation that occurred in the proper accounting period.
c. Reclassified balance sheet adjustment also to the related items in the income statement.
E. FINANCIAL
REPORTING IN THE ECONOMY HYPERINFLATION
Financial Reporting in
Hyperinflation Economic Statement of Financial Accounting Standard 63:
Financial Reporting in Hyperinflation Economic consists of paragraphs 1-40. The
entire paragraph has the power to set the same. Paragraphs which are
printed in bold and italics to set the main principles. IAS 63 should be
read in the context of goal setting and the Framework of the Preparation and
Presentation of Financial Statements.
IAS 25 (revised 2009)
Accounting Policies, Changes in Accounting Estimates and Errors provides a
basis to select and apply accounting policies when no explicit guidance. This
statement is not intended to apply to elements that are not material:
1. This statement is applicable to the financial statements,
including the consolidated financial statements of each entity that functional
currency is the currency of an economy experiencing hyperinflation (hereinafter
referred to as hyper-inflation economies).
2. Hyperinflation in the economy, reporting of operating results
and financial position in the local currency without restatement is not useful. Money
loses purchasing power such that the ratio of the amounts of transactions and
other events from time to time, even within the same accounting period, be
misleading.
3. This statement does not set at a certain level of inflation
is considered hyperinflation.Consideration is required in determining when
restatement of financial statements need to be done in accordance with this
statement.
Characteristics of the
economic environment of a country which is an indication that the country is
experiencing hyperinflation, among others:
a) Its people prefer to store their wealth in the form of non-monetary assets or in foreign currencies are relatively stable. Amount of local currency held immediately invested to maintain purchasing power;
b) people not consider the monetary amount in local currency but in foreign currencies are relatively stable. The prices may dikuotasikan in foreign currencies;
c) the prevailing price in the sales and purchases on credit is determined by inserting a factor expected loss of purchasing power during the credit period, even if the short loan period;
d) interest rates, wages and prices linked to price indexes, and
e) the cumulative inflation rate over three years approaches or exceeds 100%.
a) Its people prefer to store their wealth in the form of non-monetary assets or in foreign currencies are relatively stable. Amount of local currency held immediately invested to maintain purchasing power;
b) people not consider the monetary amount in local currency but in foreign currencies are relatively stable. The prices may dikuotasikan in foreign currencies;
c) the prevailing price in the sales and purchases on credit is determined by inserting a factor expected loss of purchasing power during the credit period, even if the short loan period;
d) interest rates, wages and prices linked to price indexes, and
e) the cumulative inflation rate over three years approaches or exceeds 100%.
4. All entities that prepare financial statements in the
currency of the same hyper-inflation economies are encouraged to apply this
statement from the same date. However, this statement is applied to the
financial statements of each entity since the beginning of the reporting period
when the entity identifies the existence of hyperinflation in the country whose
currency is used by such entities to prepare financial statements.
5. Price change from time to time as a result of political
influence, economic, social and general or specific. Specific influences
such as changes in supply and demand and technological changes may cause
individual prices increase or decrease significantly and independently from one
another. In addition, the general effects can cause changes in general
price levels and purchasing power of money.
6. Entities that prepare financial statements on the basis of
historical cost accounting do so without considering changes in general price
level or a specific price increase of a recognized asset or liability. An
exception to this principle is applied to the assets and liabilities as
required, or elected, to be measured at fair value. For example, fixed
assets are revalued at fair value. However, some entities present the
financial statements based on current cost approach that reflects the impact of
changes in specific prices of assets.
7. Hyperinflation in the economy, financial statements, either
prepared on the historical cost approach and cost approach now, it will only
work if it is expressed in units of measurement that applies at the end of the
reporting period. Therefore, this statement is applied to entities that
provide financial statements denominated in hyperinflation economy. Entities
are not allowed to present separate financial statements are not restated,
although attaching the information required by this Statement.
8. Entity's financial statements that functional currency is the
currency hyperinflation economy, based on historical cost approach or a current
cost approach, are presented in units of measurement that applies at the end of
the reporting period. Corresponding figures for the previous period
required by IAS 1 (revised 2009) Presentation of Financial Statements and any
information in the previous period are also presented in the unit of
measurement is now at the end of the reporting period. For the purpose of
presenting comparative amounts in a different presentation currency, applied
IAS 10 (revised 2010): Effects of Changes.
F. CONSTANT
DOLLARS ARE NOW OR COST (CURRENT COST) BETTER TO MEASURE
EFFECT OF INFLATION
Current
Cost
According to Philips
Edgar Edwards and Bell (1961) is the most intense character of this CCA
concept. According merka required by managers is how they allocate
economic resources available. Here are some current forms of cost:
• Replacement cost is the value of the measured current (current cost) to obtain new assets or replace it with the same production capacity. In practice the change is only applied to non-monetary assets, like inventory, fixed assets. Disajiakan fixed assets according to the exchange, the value of the net after-described values are used.Depreciation is calculated based on the value of changing it. At the time of inflation often occurs backlog depreciation or depreciation that bersaldo negative. In the presentation of this debt must be presented diskontonya value. On the value of the replacement value of inflation is greater than the general price level.
• Replacement cost is the value of the measured current (current cost) to obtain new assets or replace it with the same production capacity. In practice the change is only applied to non-monetary assets, like inventory, fixed assets. Disajiakan fixed assets according to the exchange, the value of the net after-described values are used.Depreciation is calculated based on the value of changing it. At the time of inflation often occurs backlog depreciation or depreciation that bersaldo negative. In the presentation of this debt must be presented diskontonya value. On the value of the replacement value of inflation is greater than the general price level.
This method has been
criticized in terms of:
• The subjectivity of judgment or estimate of the price so that the numbers that arise are not based on actual transactions.
• In the case of an asset price decline that would cause the decrease in charges to the income statement (such as depreciation and cost of production) is lower than the load at historical cost. Finally, income will be higher than historical cost.
• Changes in the general price is not reflected in the replacement cost method, as it was for certain assets. Therefore this method of replacement cost is not considered a method of inflation accounting
• It is hard to make comparisons between companies that differ from each other.
Although there is criticism, as the parties considered the easiest method is applied in accounting for inflation.
G. PREVENTION OF "DOUBLE-DIP"
• The subjectivity of judgment or estimate of the price so that the numbers that arise are not based on actual transactions.
• In the case of an asset price decline that would cause the decrease in charges to the income statement (such as depreciation and cost of production) is lower than the load at historical cost. Finally, income will be higher than historical cost.
• Changes in the general price is not reflected in the replacement cost method, as it was for certain assets. Therefore this method of replacement cost is not considered a method of inflation accounting
• It is hard to make comparisons between companies that differ from each other.
Although there is criticism, as the parties considered the easiest method is applied in accounting for inflation.
G. PREVENTION OF "DOUBLE-DIP"
At the time of her
restate estimates beyond horrified to take into account foreign inflation,
caution must be maintained to prevent the phenomenon of "double-dip". This
problem arises from the fact that the local inflation impact directly on the
exchange rate used in the translation process. Although economists
generally assume an inverse relationship between a country's internal inflation
rate with the external value of its currency, the evidence shows that such
relationships are rare, at least in the short term. Therefore the
magnitude of adjustments made to eliminate the phenomenon of double counting
will vary depending on the level of negative correlation between the difference
in inflation rates.
Inflation adjustment to
the cost of goods sold and depreciation expense are designed to suppress
earnings "as reported" in order not terjadioverstate ment
laba.meskipun so, due to the negative relationship between local inflation and
currency values, changes in exchange rates between the financial statements of the
other sequence, which in generalattributable to inflation (at least for a
certain period), will lead the company at least partly reflect the impact of
inflation (ie the currency translation adjustment), the profits "as
dilaporkanya". So to avoid double counting inflation, loss of
translation that has been reflected in earnings "as reported" a
company should be counted as part of the inflation adjustment.
Over the relevant
adjustment for multinational companies based in the U.S. for adopting the
dollar as the functional currency of foreign operations by FA SB 52 and the
translating inventory at the exchange rate goes. As for companies based in
the European tendency toward the use of foreign exchange translation method
runs. So that without it could result in an adjustment of profit is too
low or too high profits due to inflation abroad be counted twice.
Source of reading :
http://wenysilvia130706.blogspot.com/2011/04/pelaporan-keuangan-dalam-perekonomian.html
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