Financial statements for the period 1977–1983 are reconstructed for a sample of 50 large manufacturing firms using replacement cost (or current cost) data provided by ASR 190 and FASB 33, and market (or fair) values of long-term debt and preferred stock. As expected, these data confirm that historical cost accounting overstates profitability during a period of rising prices. These data also indicate that historical cost–based financial ratios often grossly misrepresent the relative financial strengths of firms. Financial analysis conducted on the assumption that the biases induced by historical cost accounting are similar across firms is likely to lead to false conclusions regarding financial strengths and weaknesses.

Current value accounting : a practical guide for business

What Did Inflation Accounting Tell Us

The general objective of financial reporting is to provide useful information for making economic decisions. Net realizable value has been recommended and advocated as a valuation method that would improve the usefulness of reported financial information. One shortcoming of the net realizable value method is that there are no established used market prices for certain fixed assets, such as buildings. At present, there is no evidence indicating that a solution to this shortcoming has been found. Therefore, the purpose of this study is to empirically test the reliability of using specific price indexes in predicting net realizable values for certain types of buildings. The top 1,000 publicly held corporations in the United States in 1980 were selected and top financial executives were asked to provide data on completed transactions (entry and exit values) for office, warehouse, and general purpose buildings. Five specific price indexes pertaining to buildings and construction were used in developing the model. All possible least square regressions were performed to test for the "best" index or combination of indexes. One model surfaced as being

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Current value accounting : a practical guide for business

Citations

What Did Inflation Accounting Tell Us

The usefulness and predictability of net realizable values : an empirical study

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