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. Determine the movement in net monetary assets from the beginning of the year compared with the end of the year.
Reconcile opening and closing net monetary assets with the reasons for the changes.
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.
The difference between the adjusted and unadjusted amount totals in the reconciliation is the loss of purchasing power.
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,if the price level index was 120 at the beginning of the year,150 at end of the year,and averaged 135 during the year,which of the following price-level indexes would be incorrect?

Question

Quizplus · Accepted Answer

Dividends and tax are not considered as monetary items, therefore they do not affect the net monetary assets. Thus, their adjustment should be based on the end-of-year price level index of 150. Option A is correct as it applies the end-of-year index to transactions during the whole year. Option B is also correct as it applies the beginning-of-year index to opening net monetary assets. Option D is not correct as it suggests that all options are incorrect, which is not true.

The Following Procedures Are Required to Apply the Current Purchasing