Inflation Accounting

Scenario An asset is acquired at a cost of $10,000 with a five-year life and no anticipated salvage value. Straight-line depreciation is considered appropriate. The asset was acquired on January 2, 2000. Price indexes for the five years are: <Tab/>2000<Tab/>2001<Tab/>2002<Tab/>2003<Tab/>2004 Fixed asset index<Tab/>100<Tab/>95&…

…users of financial statements. Inflation accounting is based on statistical factors which are not a perfect reflection of reality. With that said inflationary accounting should supplement historical cost accounting rather than replace it. All calculations have been performed based on sample calculations in Wolk et al. (2004). References: Wolk, H. I., Dodd, J. L., & Tearney, M. G. (2004). Accounting Theory: Conceptual Issues in a Political and Economic Environment (6e). Mason, Ohio: Thomson Learning - South-Western.