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FinancialAccountingTheory

CraigDeeganChapter4Normativetheoriesofaccounting-thecaseofaccountingforchangingprices

SlideswrittenbyMichaelaRankinFinancialAccountingTheory

CrLearningObjectivesInthischapteryouwillbeintroducedtosomeparticularlimitationsofhistoricalcostaccountingintermsofitsabilitytocopewithvariousissuesassociatedwithchangingpricesanumberofalternativemethodsofaccountingthathavebeendevelopedtoaddressproblemsassociatedwithchangingpricessomeofthestrengthsandweaknessesofthevariousalternativeaccountingmethods2PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganLearningObjectivesInthischaLearningObjectivesEvidencethatthecalculationofincomepursuanttoaparticularmethodofaccountingwilldependontheperspectiveofcapitalmaintenancethathasbeenadopted3PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganLearningObjectivesEvidencethLimitationsofhistorical

costintimesofrisingpricesHistoricalcostassumesmoneyholdsaconstantpurchasingpowerthreecomponentsoftheeconomywhichmaketheassumptionlessvalidthanwhenhistoricalcostwasdeveloped:specificpricelevelchanges(shiftsinconsumerpreference;technologicaladvances)generalpricelevelchanges(inflation)fluctuationinexchangerates4PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganLimitationsofhistorical

cosLimitationsofhistoricalcostintimesofrisingprices-continuedproblemofrelevanceintimesofrisingpricesasset’scurrentvaluemaybedifferentfromhistoricalcostproblemofadditivitycanoverstateprofitsintimesofrisingprices,withdistributionofprofitsleadingtoanerosionofoperatingcapacityincludingholdinggainswhichaccruedinpreviousperiodsincurrentyear’sincomedistortsthecurrentyear’soperatingresults

5PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganLimitationsofhistoricalcostSupportforhistoricalcostaccountingPredominantmethodusedtodaysotendedtomaintainsupportofprofessionifnotfoundusefulbusinessentitieswouldhaveabandonedit6PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganSupportforhistoricalcostacDefinitionofIncomeThemaximumamountthatcanbeconsumedduringtheperiodwhilestillexpectingtobeaswelloffattheendoftheperiodasatthebeginningoftheperiod(Hicks,1946)considerationof‘well-offness’reliesuponanotionofcapitalmaintenancedifferentnotionsofcapitalmaintenancewillprovidedifferentperspectivesofincome

7PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganDefinitionofIncomeThemaximuCapitalmaintenanceperspectivesFinancialcapitalmaintenanceperspectivetakeninhistoricalcostaccountingpurchasingpowermaintenancehistoricalcostaccountsadjustedforchangesinthepurchasingpowerofthedollarphysicaloperatingcapitalmaintenance8PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganCapitalmaintenanceperspectivDevelopmentofaccounting

forchangingpricesResearchinitiallyrelatedtousingpriceindicestorestatehistoricalcoststoaccountforchangingpricesliteraturethenmovedtowardscurrentcostaccountingthebasisofmeasurementchangedtocurrentvaluesnothistoricalvalues9PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganDevelopmentofaccounting

forCurrentpurchasingpoweraccountingAlsocalledgeneralpurchasingpoweraccounting;generalpricelevelaccounting;constantdollaraccountingbasedontheviewthatintimesofrisingprices,ifanentityweretodistributeunadjustedprofitsbasedonhistoricalcosts,inrealtermstheentitycouldbedistributingpartofitscapital10PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganCurrentpurchasingpoweraccouCalculatingindicesApriceindexisusedwhenapplyinggeneralpricelevelaccountingapriceindexisaweightedaverageofthecurrentpricesofgoodsandservicesrelatedtoaweightedaverageofpricesinapriorperiod(baseperiod)eg.AustralianConsumerPriceIndex(CPI)canuseageneralorspecificpriceindex11PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganCalculatingindicesApriceindPerformingcurrent

purchasepoweradjustmentsAlladjustmentsareperformedattheendoftheperiodadjustmentsareappliedtohistoricalcostaccountsmonetaryandnon-monetaryassetsconsideredseparatelyvaluesofmonetaryassetsdonotchangeasaresultofinflationliabilitiesgenerallyconsideredmonetaryitems12PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganPerformingcurrent

purchasepPerformingcurrentpurchasepoweradjustments-continuedIntimesofinflation,holdersofmonetaryassetswillloseinrealtermstheassetshavelesspurchasingpowerattheendoftheperiodrelativetothebeginningoftheperiodholdersofmonetaryliabilitiesgain,giventheamounttheyhavetorepayattheendoftheperiodisworthlessthanatthebeginning13PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganPerformingcurrentpurchasepoPerformingcurrentpurchasepoweradjustments-continuedNochangeinpurchasingpowerarisesfromholdingnon-monetaryassetsnon-monetaryassetsarerestatedtocurrentpurchasingpowersonogainorlossisrecognisedpurchasingpowergainsorlossesareincludedinincomefortheperiod14PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganPerformingcurrentpurchasepoMovementsinnetmonetaryassetsMustidentifychangesinnetmonetaryassetsasaresultofrevenuesorexpensesintimesofrisingpricestherewillbealossinpurchasingpowerofcashreceivedduringtheyearmoreexpensesareabletobepaidearlierintheyearasmorecashrequiredforexpensesincurredlaterintheyear15PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganMovementsinnetmonetaryasseAdvantagesofcurrentpurchasingpoweradjustmentsReliesondataalreadyavailableunderhistoricalcostaccountingnoneedtoincurcostorefforttocollectdataaboutcurrentassetvaluesCPIdataalsoreadilyavailable16PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganAdvantagesofcurrentpurchasiDisadvantagesofcurrentpurchasingpoweradjustmentsMovementsinthepricesofgoodsandservicesincludedinageneralpriceindex(CPI)maynotreflectspecificpricemovementsindifferentindustriesinformationgeneratedunderCPPAmaybeconfusingtousersstudiesofsharepricereactionsfailedtofindmuchsupportfordecisionusefulnessofCPPAdata17PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganDisadvantagesofcurrentpurchCurrentcostaccountingBaseduponactualvaluationsnotadjustedhistoricalcostdifferentiatesbetweenprofitsfromtradingandholdinggainsholdinggainscanberealisedorunrealisedincomeperspectiveadoptedwilldeterminewhetherholdinggainsorlossestreatedasincome18PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganCurrentcostaccountingBaseduTreatmentofholdinggains

orlossesFinancialcapitalmaintenanceperspectiveholdinggainsorlossescanbetreatedasincomephysicalcapitalmaintenanceperspectiveholdinggainsorlossescanbetreatedascapitaladjustments19PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganTreatmentofholdinggains

orCCAunderphysicalcapitalmaintenanceapproachAdvocatedbyEdwardsandBellvaluationsbasedonreplacementcostsoperatingincomerepresentsrealisedrevenueslessthereplacementcostofassetsinquestiongeneratesameasureofincomethatrepresentsthemaximumamountthatcanbedistributed,whilemaintainingoperatingcapacityintact20PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganCCAunderphysicalcapitalmaiAdjustmentsusingEdwardsandBellapproachAdjustmentsusuallymadeatyearendhistoricalcostaccountsusedasbasisofadjustmentsoperatingprofitcalculatedbyusingreplacementcostsholdinggainsexcludedincalculatingcurrentcostoperatingprofitnotavailablefordividends21PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganAdjustmentsusingEdwardsandAdjustmentsusingEdwardsandBellapproach-continuedBUTholdinggainsareincludedincalculatingbusinessprofitbusinessprofitshowshowtheentityhasgainedinfinancialtermsfromtheincreaseincostofitsresourcesDepreciationofnon-currentassetsbasedonthereplacementcostaswithCPPAnorestatementofmonetaryassetsrequired22PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganAdjustmentsusingEdwardsandAdvantagesofcurrentcostaccountingDifferentiatingoperatingprofitfromholdinggainsandlossescanenhancetheusefulnessofinformationprovidedholdinggainsdifferenttotradingincomeasduetomarket-widemovementsthatareoftenbeyondmanagement’scontrolbettercomparabilityofvariousentities’performance23PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganAdvantagesofcurrentcostaccCriticismsofcurrentcostaccountingReplacementcostofassetsmaynotbethesameforallfirmssomefirmsmaynotchoosetoreplacetheassetiftheentityrequiresreplacementassetsitmaybemoreefficientandlesscostlytoacquiredifferentassetsreplacementcostdoesnotreflectwhattheassetwouldbeworthifsold24PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganCriticismsofcurrentcostaccCriticismsofcurrentcostaccounting-continuedOftendifficulttodeterminereplacementcostsallocatingreplacementcostviadepreciationisstillarbitraryaswithhistoricalcostaccountingChambers(1995)claimedproductsofCCAwereirrelevantandmisleading25PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganCriticismsofcurrentcostaccContinuouslyContemporaryAccounting(CoCoA)ProposedbyChambersaswellasothersbasedonvaluingassetsatnetsellingprices(exitprices)atbalancedatesonthebasisororderlysalesreferredtoascurrentcashequivalentChambersarguedthatkeyinformationfordecisionmakingrelatestocapacitytoadapt

26PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganContinuouslyContemporaryAccoContinuouslyContemporaryAccounting(CoCoA)-continuedStatementoffinancialposition(balancesheet)consideredtobetheprimefinancialstatementshowsthenetsellingpricesoftheentity’sassetsprofitdirectlyrelatestochangesinadaptivecapitaladaptivecapitalreflectedbythetotalexitvaluesofassets27PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganContinuouslyContemporaryAccoCapacitytoadaptChambersapproachfocusesonnewopportunitiestheabilityoftheentitytoadapttochangingcircumstancestheabilityofthefirmto‘gointothemarketwithcashforthepurposesofadaptingoneselftocontemporaryconditions’assumestheobjectiveofaccountingistoguidefutureactions28PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganCapacitytoadaptChambersapprDefinitionofwealthunderCoCoAPresent(selling)priceisseenasthecorrectvaluationofwealthatapointintimepastpricesareamatterofhistorysonotrelevanttocurrentactionsprofitistiedtotheincrease(ordecrease)inthecurrentnetsellingpricesoftheentity’sassetsnodistinctionbetweenrealisedandunrealisedgains-allgainsaretreatedaspartofprofit29PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganDefinitionofwealthunderCoCDefinitionofwealthunderCoCoA-continuedProfitistheamountthatcanbedistributed,whilemaintainingtheentity’sadaptiveability(adaptivecapital)abandonsnotionofrealisationintermsofrecognisingrevenuerevenuesarerecognisedatpointofpurchaseorproductionratherthansales30PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganDefinitionofwealthunderCoCCapitalmaintenanceadjustmentUnlikeCCAthereisanadjustmenttotakeaccountofchangesingeneralpurchasingpower(inflationadjustment)capitalmaintenanceadjustmentsformpartoftheperiod’sincomewithacorrespondingcredittoacapitalmaintenancereserve(partofowners’equity)calculatedbymultiplyingnetassetsbytheproportionalchangeinageneralpriceindexovertheperiod31PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganCapitalmaintenanceadjustmentAdvantagesofCoCoAByusingonemethodofvaluationforallassets(exitvalues)theresultingnumberscanbelogicallyaddedtogether(additivity)noneedforarbitrarycostallocationfordepreciationasgainsorlossesonassetsarebasedonmovementsinexitprice32PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganAdvantagesofCoCoAByusingonCriticismsofCoCoAIfimplementedCoCoAwouldinvolveafundamentalshiftinfinancialaccountingrevenuerecognitionpointsandassetvaluationscouldleadtounacceptablesocialandenvironmentalconsequencesrelevanceofexitpricesquestionedifwedonotexpecttoselltheassets33PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganCriticismsofCoCoAIfimplemenCriticismsofCoCoA-continuedassetsofaspecificnatureconsideredtohavenovalueunderCoCoAbecausecannotbeseparatelydisposedofCoCoAignoresthe‘valueinuse’ofanassetquestionedwhetherappropriatetovalueallassetsatexitpricesiftheentityisagoingconcerndeterminingexitpricesforuniqueassetsintroducessubjectivityintoaccounts34PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganCriticismsofCoCoA-continueCriticismsofCoCoA-continuedCoCoArequiresassetstobevaluedseparatelyratherthanasabundlethereforewouldnotrecognisegoodwillasanassetvalueofassetssoldtogethercanbeverydifferentfromseparatesale35PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganCriticismsofCoCoA-continueDemandforpriceadjustedaccountinginformationLimitedevidencethatstockmarketsreacttocurrentcostandCPPAinformationlittleornosharepricereactiontopriceadjustedaccountinginformationfoundresultsmayhavebeenduetolimitationswithresearchmethodsusedreactiontootherinformationreleasedatthesametimecouldnotbedistinguishedusersmayhaveobtainedinformationfromothersourcespriortoreleaseofannualreports36PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganDemandforpriceadjustedaccoDemandforpriceadjustedaccountinginformation-continuedSurveysofmanagersfindlimitedcorporatesupportforcurrentcostaccountingcost,limitedbenefitsfromdisclosure,lackofagreementastoapproachareconsiderationssurveysofusersindicateinformationnothelpful,notusedandinformationdoesnottellusersanythingnewfindingsinterestinggiventheextentofvoluntarydisclosurebycorporations37PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganDemandforpriceadjustedaccoReasonsforlobbyingWattsandZimmermanexaminedlobbyingreactiontoreleaseofFASBDiscussionMemorandumongeneralpricelevelaccountingfoundthatpoliticalvisibilityamajorfactorinexplaininglobbyingpositionslargefirmsfavourgeneralpricelevelaccountingasleadstolowerreportedprofits38PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganReasonsforlobbyingWattsandReasonsforlobbying-continuedSupportedinNewZealandbyWong(1988)corporationsadoptingCCAduringperiodofrisingpriceshadhighereffectivetaxratesandlargermarketconcentrationsthanthosethatdidnotInUKSutton(1988)foundpoliticallysensitivefirmsmorelikelytolobbyinsupportofexposuredraftrecommendingdisclosureofCCA39PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganReasonsforlobbying-continuProfessionalsupportforvariousapproachesCurrentpurchasingpoweraccountinggenerallysupportedbystandard-settersfrom1960stomid-1970sfromabout1975preferenceshiftedtocurrentcostaccountinglate1970sandearly1980sstandard-settersissuedrecommendationswhichfavouredamixtureofCPPAandCCAfrommid1980ssupportwaned(timeoffallinginflation)40PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganProfessionalsupportforvarioPotentialreasonsforlackofcontinuedsupportMayquestiontherelevanceofcurrentcostinformationintimesoffallinginflationdrasticchangetoaccountingconventionscouldcausedisruptionandconfusionincapitalmarketsnewmethodofaccountingcouldhavetaxationconsequencesself-interestmotivesofcorporationslimitedrelevancetodecisionmakers41PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganPotentialreasonsforlackofFinancialAccountingTheory

CraigDeeganChapter4Normativetheoriesofaccounting-thecaseofaccountingforchangingprices

SlideswrittenbyMichaelaRankinFinancialAccountingTheory

CrLearningObjectivesInthischapteryouwillbeintroducedtosomeparticularlimitationsofhistoricalcostaccountingintermsofitsabilitytocopewithvariousissuesassociatedwithchangingpricesanumberofalternativemethodsofaccountingthathavebeendevelopedtoaddressproblemsassociatedwithchangingpricessomeofthestrengthsandweaknessesofthevariousalternativeaccountingmethods43PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganLearningObjectivesInthischaLearningObjectivesEvidencethatthecalculationofincomepursuanttoaparticularmethodofaccountingwilldependontheperspectiveofcapitalmaintenancethathasbeenadopted44PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganLearningObjectivesEvidencethLimitationsofhistorical

costintimesofrisingpricesHistoricalcostassumesmoneyholdsaconstantpurchasingpowerthreecomponentsoftheeconomywhichmaketheassumptionlessvalidthanwhenhistoricalcostwasdeveloped:specificpricelevelchanges(shiftsinconsumerpreference;technologicaladvances)generalpricelevelchanges(inflation)fluctuationinexchangerates45PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganLimitationsofhistorical

cosLimitationsofhistoricalcostintimesofrisingprices-continuedproblemofrelevanceintimesofrisingpricesasset’scurrentvaluemaybedifferentfromhistoricalcostproblemofadditivitycanoverstateprofitsintimesofrisingprices,withdistributionofprofitsleadingtoanerosionofoperatingcapacityincludingholdinggainswhichaccruedinpreviousperiodsincurrentyear’sincomedistortsthecurrentyear’soperatingresults

46PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganLimitationsofhistoricalcostSupportforhistoricalcostaccountingPredominantmethodusedtodaysotendedtomaintainsupportofprofessionifnotfoundusefulbusinessentitieswouldhaveabandonedit47PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganSupportforhistoricalcostacDefinitionofIncomeThemaximumamountthatcanbeconsumedduringtheperiodwhilestillexpectingtobeaswelloffattheendoftheperiodasatthebeginningoftheperiod(Hicks,1946)considerationof‘well-offness’reliesuponanotionofcapitalmaintenancedifferentnotionsofcapitalmaintenancewillprovidedifferentperspectivesofincome

48PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganDefinitionofIncomeThemaximuCapitalmaintenanceperspectivesFinancialcapitalmaintenanceperspectivetakeninhistoricalcostaccountingpurchasingpowermaintenancehistoricalcostaccountsadjustedforchangesinthepurchasingpowerofthedollarphysicaloperatingcapitalmaintenance49PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganCapitalmaintenanceperspectivDevelopmentofaccounting

forchangingpricesResearchinitiallyrelatedtousingpriceindicestorestatehistoricalcoststoaccountforchangingpricesliteraturethenmovedtowardscurrentcostaccountingthebasisofmeasurementchangedtocurrentvaluesnothistoricalvalues50PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganDevelopmentofaccounting

forCurrentpurchasingpoweraccountingAlsocalledgeneralpurchasingpoweraccounting;generalpricelevelaccounting;constantdollaraccountingbasedontheviewthatintimesofrisingprices,ifanentityweretodistributeunadjustedprofitsbasedonhistoricalcosts,inrealtermstheentitycouldbedistributingpartofitscapital51PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganCurrentpurchasingpoweraccouCalculatingindicesApriceindexisusedwhenapplyinggeneralpricelevelaccountingapriceindexisaweightedaverageofthecurrentpricesofgoodsandservicesrelatedtoaweightedaverageofpricesinapriorperiod(baseperiod)eg.AustralianConsumerPriceIndex(CPI)canuseageneralorspecificpriceindex52PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganCalculatingindicesApriceindPerformingcurrent

purchasepoweradjustmentsAlladjustmentsareperformedattheendoftheperiodadjustmentsareappliedtohistoricalcostaccountsmonetaryandnon-monetaryassetsconsideredseparatelyvaluesofmonetaryassetsdonotchangeasaresultofinflationliabilitiesgenerallyconsideredmonetaryitems53PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganPerformingcurrent

purchasepPerformingcurrentpurchasepoweradjustments-continuedIntimesofinflation,holdersofmonetaryassetswillloseinrealtermstheassetshavelesspurchasingpowerattheendoftheperiodrelativetothebeginningoftheperiodholdersofmonetaryliabilitiesgain,giventheamounttheyhavetorepayattheendoftheperiodisworthlessthanatthebeginning54PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganPerformingcurrentpurchasepoPerformingcurrentpurchasepoweradjustments-continuedNochangeinpurchasingpowerarisesfromholdingnon-monetaryassetsnon-monetaryassetsarerestatedtocurrentpurchasingpowersonogainorlossisrecognisedpurchasingpowergainsorlossesareincludedinincomefortheperiod55PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganPerformingcurrentpurchasepoMovementsinnetmonetaryassetsMustidentifychangesinnetmonetaryassetsasaresultofrevenuesorexpensesintimesofrisingpricestherewillbealossinpurchasingpowerofcashreceivedduringtheyearmoreexpensesareabletobepaidearlierintheyearasmorecashrequiredforexpensesincurredlaterintheyear56PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/aFinancialAccountingTheorybyDeeganMovementsinnetmonetaryasseAdvantagesofcurrentpurchasingpoweradjustmentsReliesondataalreadyavailableunderhistoricalcostaccountingnoneedtoincurcostorefforttocollectdataaboutcurrentassetvaluesCPIdataalsoreadilyavailable57PPTt/aCarnegieetal;FinancialandOrganisationalDecisionMakingAust.PPTt/a

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