Accounting Pdf Liju.pptx

WELCOME PRESENTED TO, SILKY MAM

PRESENTED BY, LIJU MATHEW ABRAHAM

PRICE LEVEL ACCOUNTING

INTRODUCTION  Prices do not remain constant over a period of time.  They tend to change due to various economic conditions , inflation and deflation.  Changes in the price levels cause two type of economic conditions, inflation and deflation.  These changes in the price levels lead to inaccurate presentation of financial statements which otherwise are prepared to present the true and fair view of the company’s financial health.

MEANING In price level accounting, one records price changes that affect the purchasing power of current assets and the value of the company’s long-term assets and liabilities. This can

provide a more accurate picture of a company’s value.It is used to supplement a company’s ordinary financial

statements.It is also called inflation accounting.

DEFINITION According to Roy A .Foulke,

price level accounting is a

method of converting values by means of an index number from cost or depreciated cost to current economic values.

OBJECTIVES  To show the true result of the operations.  To show the true financial position in current values.  To show the realistic value of fixed assets in financial statement.  To provide sufficient depreciation to generate funds for the replacement of fixed assets.  To indicate the real capital employed.  To make accounting records users.

reliable for the various

ADVANTAGES  Since assets are shown at current values, Balance sheet exhibits a fair view of the financial position of a firm.  Depreciation is calculated on the value of assets to the business and not on their historical cost.

 This shows current profit based on current prices.  A realistic assessment of performance.  It gives correct information,based on current price to the workers and shareholders.

DISADVANTAGES  This system is not acceptable to income tax authorities.  Too much calculations make complications.  Changes in prices are a never ending process.

 The amount of depreciation will be lower in times of deflation.  The profit calculated on the system of price level accounting may not be a realistic profit.

METHODS 1. CURRENT PURCHASING METHOD(CPP) 2. REPLACEMENT COST ACCOUNTING(RCA)

3. CURRENT VALUE ACCOUNTING 4. CURRENT COSTING ACCOUNTING(CCA)

CURRENT PURCHASING POWER Under this method, any established and approved general price index is used to cover the value of various items in the balancesheet and profit and loss account. It involves the restatement of some or all the items in the historical financial statement for changes in the general price level. For this purpose, approved price owned is used to convert the various items of historical financial statement. This method helps to present financial statement in terms of units of equal purchasing power.

REPLACEMENT COST ACCOUNTING(RCA) In this method, the index used are those directly to the company’s particular assets and not the general price index.

CURRENT VALUE ACCOUNTING In this method, all the assets and liabilities are shown in the balancesheet at their current values. The value of the assets at the beginning and at the end of the accounting period is ascertained and the difference in the value in the beginning and the end is termed as profit or loss.

CURRENT COSTING ACCOUNTING(CCA) This method is an alternative to CCP. Under this method, assets are valued at current cost. Current cost is the cost at which the assets can be replaced on a date.

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