Question

Accountancy ignores the effect of price level changes.do you agree ?give reasons

Answer 1

Answer:

How does accounting ignore the effect of price level changes and often leads to window dressing. the term window dressing means manipulation of accounts so a s to conceal vital facts and present the financial statements in such a way to show better position than what it actually is.

Explanation:

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Answer 2

Accountancy ignores the effect of price level change is an absolutely true statement. This can be justified by following reasons:

• This is one of the major limitation of accounting ratio analysis that it doesn't gives due consideration to the change in price level of the commodities.
• Double Entry Accounting is based on the principle of stable money measurement. It works on the assumption that either the change in price level non - existent or completely negligible.
• Change in the price level might create and make the computing of business positions and financial statements difficult and it becomes meaning less to record the change in price levels.
• In case of Inflation Accounting, the change of price level is considered and manipulations are made accordingly.

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