Financial Reporting and Changing Prices

Question 1

Historic Cost

Answer 1

The actual exchange value in the dollars at the time an asset was acquired or a liability was assumed.

Question 2

Current Cost

Answer 2

The cost that would be incurred at the present time, the replacement cost. Use the recoverable amount if lower.

Question 3

Nominal Dollars

Answer 3

Unadjusted for changes in purchasing power.

Question 4

Constant Dollars

Answer 4

Dollars restated based on calculations of CPI ratios.

Question 5

Difference between Historic and Current cost

Answer 5

Appreciation

Question 6

Difference between Nominal and Constant dollars

Answer 6

Inflation

Question 7

Historic Cost/Nominal Dollars (HCND)

Answer 7

Based on historic prices w/out restatement for changes in the purchasing power of the dollar. This method is the basis for GAAP used in the primary financial statements. No adjustments for appreciation or inflation.

Question 8

Historic Cost/Constant Dollars (HCCD)

Answer 8

Based on historic prices adjusted for changes in the general purchasing power of the dollar. This method uses a general price index to adjust historic cost; it retains the historic cost basis. Adjustments for inflation.

Question 9

Current Cost/Nominal Dollars (CCND)

Answer 9

Based on current cost w/out restatement for (or recognition of) changes in the general purchasing power of the dollar. Adjustments for appreciation.

Question 10

Current Cost/Constant Dollars (CCCD)

Answer 10

Based on current cost adjusted for (giving recognition to) changes in the general purchasing power of the dollar. This method may use specific price indexes or direct pricing to determine current cost and will use a general price index to measure general purchasing power effects. Adjustments for inflation and appreciation.

Question 11

Monetary

Answer 11

Monetary assets and liabilities are fixed. Holding monetary assets during periods of inflation will result in a loss of purchasing power and holding monetary liabilities will result in a gain of purchasing power.

Question 12

Nonmonetary

Answer 12

Nonmonetary assets and liabilities fluctuate in value with inflation and deflation.

Question 13

Classification of a Contra-account

Answer 13

A contra-account is classified as monetary or nonmonetary based upon the classification of the related account. (same as related account)