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By R W Scapens

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Sample text

Financial information For the year ended 31 December 19X4 (in average 19X4 pounds) f. P. information Statement 01 Financial Accounting Standards No. 33 suggests adjustments for cost of goods sold and depreciation in the profit and loss account and stocks and fixed assets in the balance sheet. Certain profit and loss account items such as purchases and expenses which arise through the year will already reflect the average purchasing power. The opening and closing stocks in the cost of goods sold calculation and the depreciation charge, however, reflect other purchasing power.

By way of 20 Accounting in an Inflationary Environment illustration suppose that a business acquires two items for resale on 1 January 19X4 and a further three items on 10 January. The five items are sold on 20 January and the total proceeds used to acquire a further four items on 22 January. These four items are held on 31 January. To determine the outcome ofthese transactions and the financial position on 31 January a measurement scale is required to assist aggregation of the two purehase transactions and for comparison with the selling transaction.

Now regards adjustments for changes in the 'Consumer Price Index for All Urban Consumers' as useful information for shareholders. P. B. will be illustrated. B. requires the publication of both constant dollar and current-cost information. The latter will be described in Chapter 6. CHAPTER 4 Constant Purchasing Power Accounting 11- Application Measurement of financial transactions in terms of constant purchasing power does not necessarily imply a major change in established accounting principles.

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