The regular Inflation has an adverse effect on budget, business and industry. because of the continuous increase in price, that is, decline in the value of Indian rupee, a demand has been made in accounting area that business enterprise should prepare inflation adjusted financial statement in place of historical cost based financial statement which are current prepared by them.
Price change can be
- general price changes
- specific price changes
- relative price changes
Recognising the importance of the effect of the changing price of the financial statement of business enterprise, the research committee of The Institute of Chartered Accountant of India has got out guidance note on accounting for changing price in 1982. in preparing the guidance note, the research committee of ICAI has drawn heavily on the various Publication on the subject by various International professional body and more particularly those by accounting standard committee in the UK.
the main objective of Guidance note is to encourage the adoption of accounting for changing prices, and to suggest a method ology relevant in the drilling economic environment in India. the guidance note discuss the three proposal for accounting for changing prices:
- periodical revaluation of fixed assets along with the adoption of LIFO formula for inventory valuation.
- current purchasing power accounting method.
- current cost accounting method
