Date of Award

4-1978

Document Type

Independent Study

Degree Name

Master of Business Administration (MBA)

Abstract

The continuing problem of inflation has spawned a debate among accountants, investors, and businessmen as to whether financial statements based on historical costs with no adjustment for the effects of inflation present an accurate picture of a firm's position. Many of these people feel present financial statements do not present an accurate picture and therefore contend the information in them can be misleading. However, these same people cannot agree as to how best to adjust financial statements to take into account the effects of inflation

The debate, then, focuses on two questions;

Should financial statements be adjusted for the effects of inflation?

and

If so, which restatement method should be adopted?

In an attempt to answer these two questions this study examines the effects inflation can have on financial statements and shows why these statements should be adjusted. Secondly, three inflation adjustment proposals are analyzed (partial adjustments to historical cost statements, replacement cost adjustments, and general price-level adjustments) to determine whether they present to users of financial statements useful information for decision making in an era of inflation.

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