Question

Enumerate and briefly explain some of potential accounting problems resulting from inflation.

Enumerate and briefly explain methods of dealing with inflation in financial reporting.

What are acceptable methods of dealing with inflation under US GAAP and IFRS?

Define “control” and “group” under US GAAP and IFRS.

Answer 1

1. Potential accounting problems resulting from inflation

They are merely "inflation profits." Inflation also distorts reported income when the costs of fixed assets are charged to income through depreciation. A business that fails to take this factor into account in its financial planning may see the value of the business decline, despite steady or modestly rising profits.

2.Methods of dealing with inflation in financial reporting

• Historical cost accounting
• Current value systems/Fair value accounting – IFRS
• General price-level adjustment/Inflation accounting
• Discounted cash flows

3.control” and “group” under US GAAP and IFRS:

under IFRS and US GAAP through  Control can transfer at a point in time or continuously over time .The accounting for a group equity-settled.