[vodrldnr]

my understanding about Constant dollar accounting is

since F/S is prepared at Nominal dollar, supplements for constant dollar accounting may be prepared to reflect the change purchasing power.

The restatement for dollar amount is only required for Nonmonetory asset

problem

82. During a period of inflation in which a liability account balance remains constant, which of the following occurs?
1.A purchasing power gain, if the item is a nonmonetary liability.
2.A purchasing power gain, if the item is a monetary liability.
3.A purchasing power loss, if the item is a nonmonetary liability.
4. A purchasing power loss, if the item is a monetary liability.

Anser : 2

why??? it says “monetary liability ”

isn’t the restatement only for nonmonetry, resulting in purchasing power gain or loss ?????

It ain't About How Hard You Hit

[vodrldnr]

okay, I've found answer by myself.

Historical cost (nominal $) is basis under gaap

constant $ is created to reflect inflation and change of purchasing power.

rules applied when preparing constant $ f/s

Regarding monetary asset, there is no need to restate it as constant $ since it is already in constant $

regarding non monetary asset, it is required to be rested in constant $ ( use Price index for calculation0

since the price of nonmentry asset such as inventory go with the flow of market situation, no purchasing power gain or loss is recognized

BUT, monetary asset such as cash result in purchasing power gain or loss since holding cash in my pocket during inflation for long time will cause me to pay more cash later since price of good in future cost more than now.

It ain't About How Hard You Hit

[Author]

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