Accounting Measurement and Changing Price Levels



Accounting data is measured and recorded in monetary terms, and we have seen from earlier chapters that the most common measure of monetary value used in accounting has traditionally been historical cost. It was established in Chapter 2 that one of the weaknesses of historical cost values is that they are established at the time the asset is purchased, and therefore may become out of date. This is especially likely where price levels fluctuate over time.


Price Level Balance Sheet Accounting Information Cost Accounting Replacement Cost 
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Notes and References

  1. 1.
    This quotation is from J. R. Hicks, Value and Capital (Oxford: Clarendon Press, 1946) 2nd edn, pp. 171–81.Google Scholar
  2. 2.
    For a survey of these developments, see G. Whittington and D. Tweedie, The Debate on Inflation Accounting (Cambridge: Cambridge University Press, 1984).Google Scholar
  3. 3.
    ‘Accounting for the effects of changing prices a Handbook’ (London: Accounting Standards Committee, 1986).Google Scholar
  4. 4.
    ‘Accounting for the effects of changing prices a handbook’.Google Scholar
  5. 5.
    ‘Accounting for the effects of changing prices a handbook’.Google Scholar
  6. 6.
    See, for example, Y. Ijiri, ‘A defense of historical cost accounting’, in R. R. Sterling (ed.), Asset Valuation and Income Determination (Houston, Texas: Scholars Book Co., 1971).Google Scholar
  7. 7.
    Ijiri, ‘A defense of historical cost accounting’.Google Scholar
  8. 8.
    A selection of these proposals would include: ASSC, ‘The corporate report’ (London: Accounting Standards Steering Committee, 1975). D. Solomons, ‘Guidelines for Financial Reporting Standards’ (The Solomons Report) (London, ICAEW, 1989). Sandilands Committee, ‘Inflation Accounting: Report of the Inflation Accounting Committee’, Cmmd 6225 (London: HMSO, 1975). Institute of Chartered Accountants of Scotland, ‘Making Corporate Reports Valuable’, ICAS, 1988. Kogan Page London. IASC, ‘Framework for the preparation and presentation of Financial Statements (London: International Accounting Standards Committee, 1989).Google Scholar
  9. 9.
    See, for example T. Lee, Cash Flow Accounting (London: Van Nostrand Reinholt, 1984).Google Scholar

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© Arthur Hindmarch and Mary Simpson 1991

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