The following procedures are required to apply the Current Purchasing Power Accounting (CPPA)model in order to adjust the financial statements to reflect price-level adjusted financial statements. 1.Determine the movement in net monetary assets from the beginning of the year compared with the end of the year.
2)Reconcile opening and closing net monetary assets with the reasons for the changes.
3)Determine when the movements in net monetary assets for each item took place,and then apply the appropriate price-level index to calculate current purchasing power adjusted amounts.
4)The difference between the adjusted and unadjusted amount totals in the reconciliation is the loss of purchasing power.
5)A price-adjusted Balance Sheet is then prepared,adjusting all the non-monetary assets with the end-of-year price index.
In applying the CPPA model,where does the loss of purchasing power appear in the price-level adjusted financial statements?

Question

Quizplus · Accepted Answer

The loss of purchasing power appears as a deduction from profit after tax in the Income Statement. This is because the adjustment for inflation reduces the value of non-monetary assets and increases expenses, which ultimately leads to a lower profit after tax. This loss is then deducted from the profit after tax to arrive at the real profit after tax, which reflects the effects of inflation.

The Following Procedures Are Required to Apply the Current Purchasing