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Vol. 6 • No. 1 • Dec 2011

Accounting for Changing Price Level

Mosammat Fahima Khatun Associate Professor,
Department of Accounting and Information Systems, Rajshahi University, Rajshahi


Conventional financial accounting discloses revenues, expenses, assets, liabilities, and owner's equity in terms of historical monetary units exchanged at the time the transactions occur. It does not address the aspect of price level changes and only maintains ‘financial capital’. But to maintain ‘real capital’, ‘physical capital’ and ‘operating capability’ demand for price adjusted accounts emerged. Various proposals and methods were suggested to cope with the situation. Recognizing the fact that purchasing power of money declines due to inflation CPPA uses general price index to adjust price changing effects. Current value accounting uses specific prices. Its different forms are : CCA which uses replacement cost (Entry price), CoCoa which uses realizable value (Exit price) and CCA - Mixed value which uses deprival value i.e., ‘value to the business’ as current value. Current value accounting involves complicated calculations. Subjective valuations in accounting for price level accounting distort objectivity, relevance and comparability of financial statements. However, even at the period of low inflation price level adjusted data as supplementary statements seem beneficial to users.

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