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The Research of Effects of Inflation the Accounting of Assets and Profits of Enterprises

Author: WuZhiQiang
Tutor: ShenJiQiong
School: Southwestern University of Finance and Economics
Course: Accounting
Keywords: inflation accounting of assets profit
CLC: F275
Type: Master's thesis
Year: 2013
Downloads: 63
Quote: 0
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After the reform and opening up, especially the entry to WTO, China has abtained remarkable achievement as the sky-rocketing GDP. In this situation, China’s overall inflation takes place:the excessive liquidity of currency and high demand of raw material, the intersection of the economy both at home and abroad, the soaring price of materials and commodities in internationl market and the public expectation of inflation, and press of the imported inflation, altogether lead to a direct impact on the profit of enterprises.The complex economy situation shows,that a varieties of factors lead to the press of the present domestic inflation. Internally, the rising of wages and costs under the press of CPI in a period will increase the public expectation toward inflation. Let alone the world crisis in2008, as the vane in the upper reaches of price, the increasing degree of PPI after2008gets5%, leading to the transfer in the upper to the customing fileds. Now, the quantity of the currencu issuing beats the increasing of GDP by20%. And according to history, the risk of the high speed of currency will transfer to the mechanic, of price, increasing the danger of inflation. Internationlly, as a result of subprime crisis, the main enconomic body, such as China and the US, all put forward stimulating policy from control inflation to pursue economic propsper, aiming to creat a more loosen environment. The enormous demand for raw material and production factors as a result of the accerlation of the industrial modernization of the BRICS countries, will lead to a rising trends of price of international goods. The GDP of recent years tells us a truth that inflation is inevitable.Inflation will put great impact on the company profit. In this situation, accoounting of assets and other financial informaiton will be distorted. Firstly, it is difficult to recognise the narrowing of profit due to the rising of material and the cost. Secondly, operation cost cannot reflect the real cost of assets when business occurs because of its character of history cost. Thirdly, the Accounting Standard for Enterprise says, financial assets and liabilities, long-term equity investment, real estate for investment and so forth, take the model of fair value for subsequent measurment. However, fair value put more emphasis on the conditon of current market except fairness and reality, and the price changes under currrent market conditon will impact much on comsumers’expectation, thus leads to fluctation of the fair value of assets, misleading the investme nt decision of investors. Therefore, it is neccesary for us to deal with relevant categories to get more reliable accounting information.This paper contains6chapters:Chapter1includes the backgrounds and meanings, objective,framework and the contributions and shorts of this article, which explains the acconting of assets and the effects on the alteration of profits through the impacts generated from the traditonal energy companies under inflation, aiming to make accounting information more reliable.Chapter2is the review of papers at both home and broad, through which we find that the comeprehensive explanation from the cause of inflation, its effect on the dealing of the accounting of assets and the gains and loss is relatively limited, although the single research of each topic is rather common.Chapter3and4mainly talks about the analyses of the basic theory on the topic to testify the relationship between the current inlfation and its effect on accounting of assets and the change of profits.Chapter5analyzes the effect and relationship between the change of assets and profits caused by the inflation through the example of Petrol China. Firstly, this chapter introduces the characteristics and patterns in China, indicating that it is typical and representative. Secondly, we take Petrol China for example, distinguish the currency and non-currency items in the balance sheet, choose typical and main items, analyze the situation and then get its final effects on the total profits.Chapter6gives some pieces of advice based on the theory and problems in the example from the angle of the relevancy and reliablity of accounting information, the unificaiton of the measuring standards of inflation and the financial statement system, to soothe or even avoid the negative effects.

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CLC: > Economic > Economic planning and management > Enterprise economy > Corporate Financial Management
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