Analysing inflation on historical trading profit

Article Abstract:

Methods for identifying the amount of corporate profit (or loss) attributable to inflation are examined by a chartered accountant. The analysis focuses on the inflationary effects notable when computing cost of sales (COS) and when referring to the Real Prices Index (RPI) of Great Britain for a comparison to other companies' inflationary profit. Price movements and their effect on trading profits should be analyzed using a three-step process: (1) identifying the difference between selling and purchase prices at the beginning and end of the accounting period; (2) eliminating prior year inflationary effects, by computing the increase in selling prices at the beginning of the lead-time and at the beginning of the fiscal year; and (3) computing the difference between (1) and (2) to determine the effect of current year inflation on trading profits.

Analysis, Profit, Profits, Scotland, Inflation (Finance), Financial statements, Corporation reports, Company reports, Inflation accounting, Inflation (Economics)

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The accountant's extraordinary predicament

Article Abstract:

The Accounting Standards Committee (ASC) has proposed several amendments to standard statement of accounting practice number six, the treatment of extraordinary items in expense accounts. The revised standard does not make published expense accounts more informative, and it adds to the number of variables which make reports incompatible. One area of confusion concerns reorganization. The ASC recommends that losses from the disposal of a business be shown as an extraordinary item, but it does not make a clear distinction between exceptional items and extraordinary items.

Standards, Business ethics, Expense accounts

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