Inflation Accounting

Scenario An asset is acquired at a cost of $10,000 with a five-year purport and no anticipate salvage value. Straight-line dispraise is considered appropriate. The asset was acquired on January 2, 2000. set major advocatees for the five geezerhood be:         2000         2001         2002         2003         2004 quick-frozen asset index          light speed         95         108          great hundred         125 General price index         100         one hundred ten         115         112         125 Compute the legitimate value depreciation for for each one year. * What is the realized real retentivity pull to sustainher for the geezerhood 2001 - 2004? * What would the holding gain be under EIP for the years 2001 - 2004? Historical Cost Accounting We bequeath start with the depreciation according to historical cost report as a basis for the next calculations. The asset was purchased with a cost of $10,000 and a useful live of 5 years with no anticipated salvage value. We are also presumptuous straight-line depreciation which would go forth in a depreciation of $10,000 shared out by 5 years equals $2,000 per year. The results are shown in the following table. expose 1 General Price Level Adjustment be are translated into current purchasing power dollars by compensateing value according to the general price index.

Calculations are performed based on Wolk, Dodd, and Tearn ey (2004), p 467. The factor that we use to ! coordinate values - I will call it the General Price Index constituent or GPIF - is playd by . render calculation for 2002: . This is the counterbalance step, see Exhibit 2. Exhibit 2 Next we puzzle out the correct measuring sticks for asset and depreciation by multiplying the historical amount by the GPIF, see Exhibit 3. Exhibit 3 To calculate adjusted cash amounts we mother to calculate a olive-sized differently since we need to adjust from year to year rather of from base year to current year. The GPIF relative to... If you want to get a full essay, govern it on our website: BestEssayCheap.com

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