what are the merits and demerits of inflation accounting?
Answers
Answer:
Advantages and Disadvantages of Inflation Accounting
What is Inflation Accounting?
Advantages of Inflation Accounting. Fair view. Accurate depreciation. No overstatement. Keep a check on dividend payment. True and Fair Balance sheet. ...
Disadvantages of Inflation Accounting. Never ending process. Complicated process. Theoretical concept. Expensive technique. Situation in Deflation.
Explanation:
The major merits of inflation accounting are as under:
(i) Realistic view. ...
(ii) Basis of Depreciation. ...
(iii) Check on payment of dividend out of capital. ...
(iv) True and fair Balance-sheet. ...
(v) Reasonable comparison of profitability. ...
(vi) Check on Mis-leading Deeds. ...
(vii) Wrong matching concepts.
Inflation accounting shows current profit based on current prices. 5. Profit or loss is determined by matching the cost and the revenue at current values which are comparable—a realistic assessment of performance. 6. Financial ratios based on figures, adjusted to current value, are more meaningful.