Financial Reporting and Changing Prices Flashcards
What information should publicly companies may disclose?
- Historic Cost
- Current Cost
- Nominal Dollars
- Constant Dollars
what is historic cost?
Cost when the asset is acquired or liability assumed
what is current cost?
Replacement cost, cost would be incurred at the present time.
what is nominal dollars?
unadjusted for changes in purchasing power
what constant dollars?
dollars restated based on calculations of CPI ratios
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
Wha is Historical Cost/Nominal Dollars Method?
is based on historic prices without restatement for changes in the purchasing power
Wha is Historical Cost/Constant Dollars Method?
is based on historic prices adjusted for changes in the general purchasing power of the dollar
Wha is Current Cost/Nominal Dollars Method?
is based on current cost without restatements for changes in the general purchasing power
Wha is Current Cost/Nominal Dollars Method?
is based on current cost adjusted for changes in the general purchasing power of the dollar. Use specific price indexes or direct pricing to determine current cost.
What is a monetary item?
the monetary asset or liability are fixed in dollars regardless of changes in specific prices or the price level.
holding monetary asset at inflation- loss PP
holding monetary liability at inflation- Gain PP
What is a non-monetary item?
the monetary asset or liability fluctuate in value with inflation or deflation.
how is measure the appreciation of the assets?
Appreciation is measured by evaluating replacement costs using current dollar accounting. In a period of rising prices, we would anticipate that non-monetary assets would appreciate in value.
