DEFINITION OF CHANGING PRICE General price usually arise when all price of service and Products are changes

in Economic. Generally, the increasing in price called inflation, meanwhile decreasing in price called deflation. What causes inflation? several evidence show that inflation causes by high growth of Economic, the highest of cost of general elected , and expand of international inflation. In other side, special changing price arise when price of some Products, service change through up and down of supply and demand. As consumer, we realize that inflation effected to our standard material of life. We quickly feel the impact when oil or Big Mac up. Disturbance of social and politic which of affected by hiperinflation is extraordinary. There are several phrase of inflation accounting; atribute : chareteristic from one post which Measures by accounting decision. Equity income : increase current cost non-moneter asset. hiperinflasi : the high inflation level , ex. when general level price in Economic increase more than 25% every year. inflasi : the increase general price in all of produt and service in Economic. Moneter asset : claim to several fix currency in future, ex. cash and receivables. Moneter income : Increase of general purchasing power arise when moneter liability retained during inflation period. Moneter liabilities : requirement to pay some fix currency in future. nonmoneter asset : asset which is not fix claim to cash. nonmoneter liabilities : payable which not required to pay some cash in future. Why are Financial Statement During Periods of Changing Prices? Potentially Misleading

During periods of inflation, revenues are based on the general purchasing power of the certain period. Expenses, such as depreciation and amortization, may be based on currency of higher general purchasing power because their related assets were typically acquired in the past when GPLs were lower. Deducting expenses based on historical purchasing power from revenues that expressed in currency of certain purchasing power yields a nonsensical index of performance. Overstatement in reporter income may lead to ; 1. comparable higher taxes 2. higher dividen from stockholders 3. higher wages from employee 4. Policy which deny from goverment host

In inflation period, revenue usually show in currency which have purcahsing power less than expenditures. Thats why , it will useful if we recognize effect inflation in explisit, because of reasons : 1. Effect of changing price depend on parsial to transaction and Company condition. 2. handling problem affected by changing price depend on deeper understanding to that problem 3. manager statement about problem which affected by changing price more beliveable if Company publish financial information about that problem Types of Adjustments for Changing Prices combination of statistic is to Measures general or special changing price usually not going together. to calculate changes influance level general price to financial report called by historical cost-constant purchasing power model and accounting for special changing price called by current cost model. General Price Level Adjustments To measure income such that it represents an amount that could be describe from the business while preserving the general purchasing power of the firms original investment. Amount currency adjusted by level changing price called by fix currency-historical cost. amount currency not adjusted called nominal. price index General level changing price Measures by general price level (GPL), where: p commodity price and q amount of consumtion. For example if there is a family with 4 people spend $ 20.000 to buy some product & service in end periode year-1 ( based year = beginning year -2 ) and $ 22.000 to buy same product one year later. So, price index for ends year -2 is $ 22.000/20.000 or 1,100. This number mean that level of inflation 10% in second year ( year 2). In same way, if 2 years later ( end of year 3 ) that family spend $ 23.500 for same product , so the general price index $ 23.500/20.000 or 1,175, or 17,5% since based year. Price index for based year is $20.000/20.000 or 1,000 Utilizing Price Index Number of price index use in transalation of Money which pay in past periode to purchasing power equivalent in ending periode (fix purchasing-historical cost). the formula that used is: GPLC/GPLtd x Jumlah nominaltd=PPEc where: GPL c = general price index = current year

td PPE

= transaction date = purchasing power equivalent

For example, assume we spend $ 500 in ending year, and $ 700 one year later. We will try to calculate how much expenditure in purchasing power equivalent in Third year, use number of price index , from past example so we can calculate ; Third year (3) Ending Year-1 Year-2 Amount of expenditure $ 500 $ 700 Adjusted factor 1,175/1000 1,175 / 1000 Equivalent purchasing power $ 587,50 $ 747,43

From that calculation, we know that if we want to buy a products with price $ 500 in year -1, we need $ 587,50 for the same Products in year -3. And in year 2 when we pay $ 700, so we need $ 747,43 for end year -3. If all transaction do as same as certain periode , so price level adjusted in short way can use. When we want to show revenue as purchasing power equivalent in ends periode, we can use this formula GPLc/GPLavg x Total revenue = PPEc General Level Price Adjusted Object In traditional, profit ( net wealth after tax ) is part of wealth ( net asset ) which can put by Company in certain periode accounting, without reduce wealth under their level. With assumption Theres no investment by owner in that periode. For example , we assume that Company in Argentina begin their calendar year with cash ARS100.000, which convertion become inventor ( ex. 10.000 unit of CD ( compact Disc) , with 10 peso for 1 unit ). This Company sell all inventories in one year with increasing price 50%. Assumption theres no inflation, so profit bussines ARS 50.000, the different between beggining and ending net asset ($150.000-100.000). So, the Company have same amount as in beginning investment. Now, if inflation level 21%, with average general price level 1,10 in one year ( 1,21 in ends year ), so companys profit will adjusted and calculation by that infaltion; Nominal of Peso Revenue Expanditures Operational profit Moneter Loss ARS 150.000 (100.000) ARS 50.000 = Adjustment factor 1,21/1,10 1,21/1,00 Current Peso ARS165.000 (121.000) ARS 44.000 (15.000)

Net Profit

ARS 50.000

ARS 29.000

In that calculation , there are moneter loss, where is it from? In inflation periode, companys wealth which not realtion with operasional activity has change. This change comes from moneter asset or liabilities claim to pay some money in future. Moneter asset include cash, receivables, generally reduce the purchasing power in inflation periode. Moneter liabilities include almost payable, which in generally have an increasing purchasing power in inflation periode. IAS29 decision by International Accounting Standard Counsil, adjust with this changing price for accounting. This show below of net income report from VESTEL, which adjust with inflation.

IAS 29 - Financial reporting in Hiperinflation Economics (IAS29) require the financial report show in currency of hiperinflation Economic in order to disclosure the measuring unit for ends date of balance. And the adjustment numbers in past periode explain in same unit. In one condition IAS 29 must be applicated is three years cumulative inflation level which close or more than 100%. For example in VESTEL cumulative three yearss inflation level per 31 december 2005 is 36% :70 % based on grocery price index in Turki by Statistic Departement of Turki. Both index has converted as shown ; Year Index Convertion Factor 2005 8.785,7 1.000,0 2004 8.403,8 1.045,0 2003 7.382,1 1.190,0

Restatement in balance account and net income use general index price and relevant convertion factors not means that Company can realize or complete the same value of asset and liabilities as shown in balance sheet. This is not mean that Company can pay back or complete the equity value of stockholders. Current Cost Adjusted Current cost model different with conventional accounting in two aspect. First, valuation asset at current cost than historical cost. because in base asset same with current discount from futere cash flow. second, income defined as net asset after tax Company, that is total Resources which is distributable of Company in periode (not include tax considarable)while maintain production capacity or physic capital. one way to mantain capital is adjust beginning net asset Company, (i.e. current billing price, list price from supplier, and others) to reflect changing current cost equivalent from asset in period. For example ; current cost model , transaction of companys partner can illustrated with accounting equalization ; ( in thousand) Asset = Liability + Owners equity No 1 2 3 4 5 Cash 100.000 (100.000) 150.000 Inventory 100.000 40.000 (140.000) Equity 100.000 150.000 ( revenue ) 40.000 reval OE (140.000) expense

First line , show influence of beginning Investment Company ARS 100.000. Second line show cash exchange with inventory. Third line show sold of inventory for get cash, which increase owners equity in same amount. To describe certain expense to sales, company increase the support value of inventory 40%, as shown in fourth line. Guarantee for inventory 40% is increasing for revaluation account owners equity ARS40.000. Company explain that to defend their operasional capacity, the increasing of assets expense which consume to get revenue in certain year must be attend. Company also pressure that disclosure of current cost also see special changing price which give influence for Company. Current Cost Adjusted With General Price Level This topic related to explain changing price can merger chareteristik of general price level model dan current cost. This Measures, call as current cost adjusted with general prices, using general price index or special. Another purpose of Current cost, is to report net assets company in current cost, and to report total income which withdrawn net wealth after tax. One charateristic from current cost model which adjusted with level price is disclosure changing current cost from nonmoneter assets company after deduction inflation. The purpose to showing part of changing nonmoneter asset more or less from changing of general purchasing power. For example ; we assume that current cost from Machines equipment in beginning year is $1.000, in ending year the changing cost become $1.250. General price level in the same year increase from 100 to 110. Its mean that we will need $110 in end year to get what we can buy with $100 in beggining year. And the different changing price of There are two disclosure rather include in stockholderss equity mean as : The increasing of non moneter asset causes general inflation is total amount / balance from Company in order to face that general inflation. The second component, example the increasing current cost more than general inflation, in some opinion means that it is unrealized equity income fron nonmoneter asset.

This shown below Financial reporting from Grupo Modello which cost current adjusted with level price ;

2. Accounting Policy - Representation standard : Consolidation financial reporting Grupo Modello include inflation to financial information. - Comparability : the numbers which show in consolidation financial reporting with notes explain consistently in peso purchasing power 31 december 2005 with applicate factors from National Consumer Price Index (NCPI). - Cureent asset : This account recognize in book value , and restatement during apply inflation factor from NCPI to net value change based on appraisal. - Inventory : this account revaluated by using changing method . without more than unrealized net value. - Depreciaton : this account calaculate based on restatement value of current asset, based on profitability period Economic life from appraisal and technic di vision of Grupo Modello.

- Restatement stackholders equity : component of stockholderss equity restatement by using factor from NCPI, and show in consolidation financial reporting as restatement value. - Cumulative profit or Loss from parents nonmoneter asset : this account is cumulative changing value of nonmoneter asset which causes another general inflation.