Financial Reporting & Changing Prices Flashcards
current cost
replacement cost
cost that would be incurred at present time
reflects appreciation
historic cost
value of asset at time it was acquired/liability was assumed
ignores appreciation
nominal dollars
unadjusted for changes in purchasing power
ignores inflation
constant dollars
dollars restated based on calculations of CPI ratios
```
reflects inflation
CPI = consumer price index
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historic cost/nominal dollars
HCND
basis for GAAP
based on historic cost, no adjustment for appreciation or inflation
historic cost/constant dollars
HCCD
based on/retains historic prices, adjusted for inflation
current cost/nominal dollars
CCND
based on current cost
no adjustment for inflation
current cost/constant dollars
CCCD
based on current cost
adjusted for inflation
monetary items
assets/liabilities are fixed
during periods of inflation:
- assets results in loss of purchasing period
- liabilities results in gain of purchasing period
non-monetary items
assets/liabilities fluctuate in value
may lose/gain value with rise/fall of CPI
cash
monetary
common stock
nonmonetary
bonds (nonconvertible)
monetary
AR/NR
monetary
inventory
nonmonetary
