Financial Reporting and Changing Prices Flashcards
Historic cost
The actual exchange value in the dollars at the time an asset was acquired or a liability was assumed (ignores appreciation)
Current cost
The cost that would be incurred at the present time, the replacement cost. Use the recoverable amount if lower (reflects appreciation)
Nominal dollars
Unadjusted for changes in purchasing power (ignores inflation)
Constant dollars
Dollars restated based on calculations of CPI ratios (adjusts for inflation)
What are the four methods of measuring prices and the effects of price changes?
- Historic cost/nominal dollars
- Historic cost/constant dollars
- Current cost/nominal dollars
- Current cost/constant dollars
Historic cost/nominal dollars
Based on historic prices w/out restatement for changes in purchasing power of the dollar (GAAP basis)
Historic cost/constant dollars
Based on historic prices adjusted for changes in the general purchasing power of the dollar
Current cost/nominal dollars
Based on current cost w/out restatement for (or recognition of) changes in the general purchasing power of the dollar
Current cost/constant dollar
Based on current cost adjusted for (giving recognition to) changes in the general purchasing power of the dollar
Monetary assets/liabilities
Fixed or denominated in dollars regardless of changes in specific prices or the general price level
What would holding monetary assets during inflation result in?
Loss of purchasing power
What would holding monetary liabilities during inflation result in?
Gain of purchasing power
Nonmonetary assets/liabilities
Fluctuate in value with inflation and deflation
Affected by the rise or fall of the CPI and the increase or decrease in the FV of the nonmonetary item
How is a “contra-account” classified in terms of monetary and nonmonetary?
Based upon the classification of the related account
Under what accounting are specific price indexes used to restate FS items?
Current cost accounting
