A

PROJECT REPORT
ON
“Application Of Inflation Accounting to A Large
Company’s Balance Sheet. ”

SUBMITTED TO
SAVITRIBAI PHULE PUNE UNIVERSITY

IN
PARTIAL FULFILLMENT OF THE REQUIREMENT
FOR THE AWARD OF THE DEGREE OF
Master’s Of Commerce (M.COM)

SUBMITTED BY

Mr. Bhadait Swapnil Vinayak .

PART VIDYA PRASARAK MANDAL’S BABUJI AVHAD

MAHAVIDYALAY PATHARDI ,AHMEDNAGAR 414502 BATCH
2022-2023.

1
 Parth Vidya Prasarak Mandal’s
Babuji Avhad Mahavidyalay,
Pathardi,Ahmednagar (Maharashtra),414102
Department of Commerce
Date:

Certificate

This is to certify that, Mr. Bhadait Swapnil Vinayak of MCOM (Master’s Of

Commerce) Course, SEM-IV has completed her Project Work Titled
“Application Of Inflation Accounting to A Large Company’s Balance
Sheet.”, as a part of curriculum,during the Academic Year 2022 -2023.

Dr. Salave Prashant S

Dr. Salave Prashant S
Head of Department,
Project Guide
Commerce(MCOM)

Examiner Name Sign of Examiner:

1.

2. _

Date of Examination: / / 2023

2
 DECLARATION

I hereby declare that the Project Titled “Application Of Inflation

Accounting to A Large Company’s Balance Sheet” is an original Project Work
carried out by me under the guidance & supervision of MCOM(Business
Administration) Faculty member of Babuji Avhad Mahavidyalay Pathardi,
Ahmednagar.

This work has been submitted in fulfillment of the Master’s Of

Commerce(Business Administration) to Savitribai Phule Pune University and
not submitted to anywhere else for any other purpose.

Place : Pathardi

Date : / / 2023

Student Name :

Mr. Bhadait Swapnil Vinayak.

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 Acknowledgement

We express our deep gratitude and sincere thanks to . Dr. Salave

Prashant Ssir for giving us an opportunity to undergo our project and also for
giving proper co-operation, guidance, inspiration and helpful suggestion to
prepare this project work.
We would also remain indebted to Dr. Salave Prashant S.(H.O.D)
DEPARTMENT OF COMMERCE(Business Administration) for providing the
infrastructure and facilities needed to pursue this course and also giving kind
ofguidance and suggestion for completing the project work.
We also thankful to our parents who providing their wishful support for
ourproject completion successfully.
Lastly, we are thankful to our classmates and friends for their direct or
indirect contribution in the completion of work.
Thanking you.

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 EXECUTIVE SUMMARY

The project report analyzes the application of inflation accounting to a large

company's balance sheet, highlighting its benefits and limitations. Inflation
accounting is a method of accounting that adjusts financial statements for the
effects of inflation, providing a more accurate picture of a company's financial
position. The report discusses the various techniques used in inflation
accounting, including current cost accounting and constant dollar accounting.

The project also explores the advantages of using inflation accounting, such as
improving the comparability of financial statements over time, helping
companies to make better investment decisions, and reducing the impact of
inflation on taxes. However, the report also identifies several limitations of
inflation accounting, including the complexity of the calculations involved and
the potential for subjective judgments in determining appropriate inflation rates.

In conclusion, the project recommends that large companies consider

implementing inflation accounting to improve the accuracy and usefulness of
their financial statements. However, careful consideration should be given to the
potential limitations and challenges associated with this approach.

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 INDEX

PAGE
CHAPTER TITLE NO.

1. INTODUCTION 8

2. COMPANY PROFILE 12

3. OBJECTIVES 16

4. REVIEW OF LITERATURE 17

5. RESEARCH METHODOLOY 21

6. DATA ANALYSIS AND INTERPRETATION 24

OBSERVATION
7. FINDINGS & SUGGESTIONS 31

8. Advantages and Disadvantages 34

9. Limitations and Conclusion 37

10. Bibilography 38

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 CHAPTER 1

INTRODUCTION

Inflation accounting is a specialized accounting approach that aims to address the effects
of inflation on financial statements. As inflation can distort financial information, it is
important for companies to adjust their accounting practices to provide a more accurate
representation of their financial position.

This project report focuses on the application of inflation accounting to a large

company's balance sheet. The report examines the concept of inflation and its impact on
financial statements, as well as the different methods and techniques used in inflation
accounting.

The report also analyzes the specific challenges faced by large companies in
implementing inflation accounting and provides recommendations on how to overcome
these challenges. In addition, the report explores the potential benefits of inflation
accounting, including improved decision-making, enhanced transparency, and better
investor confidence.

Overall, this project report aims to provide a comprehensive overview of the application
of inflation accounting to a large company's balance sheet, highlighting its importance
and potential benefits.

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SCOPE OF STUDY:

The scope of a study on the application of inflation accounting to a large

company's balance sheet would typically involve analyzing the impact of inflation
on the financial statements of the company, and evaluating the effectiveness of
inflation accounting methods in providing a more accurate representation of the
company's financial position.

The study would typically involve the following components:

1. Literature review: A review of relevant literature on inflation accounting,

including historical background, theories, and applications in accounting practice.

2. Data collection: Gathering relevant financial data from the company's financial
statements, such as balance sheets, income statements, and cash flow statements.

3. Analysis of data: Conducting a quantitative analysis of the financial data to

assess the impact of inflation on the company's financial performance and financial
position. This may involve adjusting financial statements for inflation using
different accounting methods, such as current cost accounting, general price-level
accounting, or specific price-level accounting.

4. Evaluation of inflation accounting methods: Assessing the effectiveness of

different inflation accounting methods in providing a more accurate representation
of the company's financial position. This may involve comparing the results of
different accounting methods and evaluating their strengths and limitations.

5. Conclusion and recommendations: Summarizing the findings of the study and

providing recommendations for the company on the best inflation accounting
method to use.

Overall, the scope of the study would involve analyzing the impact of inflation on
a large company's financial statements and evaluating the effectiveness of different
inflation accounting methods in providing a more accurate representation of the
company's financial position.

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 Limitation:

Inflation accounting is a specialized accounting method that seeks to adjust financial

statements for the effects of inflation. While it can provide valuable insights into the
true financial position of a company, there are also limitations to its application. Some
of the limitations of applying inflation accounting to a large company's balance sheet
include:

1. Time-consuming: Implementing inflation accounting requires significant time and

resources, especially for large companies with complex financial statements. It
involves gathering and analyzing data from various sources, adjusting financial
statements for inflation, and preparing reports that accurately reflect the impact
of inflation on the company's financial position.
2. Difficulty in determining inflation rate: One of the key challenges in applying
inflation accounting is determining the appropriate inflation rate to use. This can
be difficult as inflation rates can vary widely across different economies and
industries. It may also be challenging to determine the appropriate rate to use
for future projections.
3. Complexity: Inflation accounting is a complex method that requires a high level
of expertise in accounting and finance. It may be challenging for companies to
find qualified professionals with the necessary skills and experience to
implement the method effectively.
4. Lack of comparability: Applying inflation accounting may result in financial
statements that are not comparable with those of other companies or with
financial statements prepared using other accounting methods. This can make it
difficult for investors, analysts, and other stakeholders to make meaningful
comparisons between companies.
5. Incomplete data: Inflation accounting requires access to historical data on prices
and inflation rates. However, such data may not always be available, especially
for companies operating in countries with weak economic data collection
systems.
6. Limited relevance: Inflation accounting may not be relevant for companies
operating in industries with stable or low inflation rates. In such cases, the
benefits of applying inflation accounting may not outweigh the costs and
complexity involved.

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In conclusion, while inflation accounting can provide valuable insights into a company's
financial position, its application to a large company's balance sheet may be limited by
the factors discussed above. Companies should carefully consider the costs and
benefits of applying inflation accounting before deciding whether to use this method.

11
 CHAPTER 2

COMPANY PROFILE

HISTORY :

The company was incorporated on 29 December 1945 in Amalner, Maharashtra by

Mohamed Premji as 'Western India Vegetable Products Limited', later abbreviated to
'Wipro'. It was initially set up as a manufacturer of vegetable and refined oils in
Amalner, Maharashtra, India under the trade names of Kisan, Sunflower, and Camel.
During the 1970s and 1980s, the company shifted its focus to new business
opportunities in the IT and computing industry, which was at a nascent stage in India at
the time. On 7 June 1977, the name of the company changed from Western India
Vegetable Products Limited, to Wipro Products Limited. The year 1980 marked the
arrival of Wipro in the IT domain. In 1982, the name was changed from Wipro Products
Limited to Wipro Limited. Meanwhile, Wipro continued to expand in the consumer
products domain with the launch of "Ralak" a Tulsi based family soap and "Wipro
Jasmine", a toilet soap. In 1988 Premji took a loan of 1 million dollars from Sonkar and
Sons to set up the project. Later the entire loan amount was waived. In 1988, Wipro
diversified its product line into heavy-duty industrial cylinders and mobile hydraulic
cylinders. In 2000 Wipro launched Wipro OSS Smart and Wipro WAP Smart. In the same
year, Wipro got listed on New York Stock Exchange.

In February 2002, Wipro became the first software technology and services company in
India to be ISO 14001 certified. Wipro Consumer Care and Lighting Group entered the
market of compact fluorescent lamps, with the launch of a range of CFL, under the
brand name of Wipro Smart lite. In April 2011, Wipro signed an agreement with Science
Applications International Corporation (SAIC) for the acquisition of their global oil and
12
gas information technology practice. In 2012 Wipro acquired Australian Trade
Promotions Management firm Pro max Applications Group (PAG) for $35 million.

AWARDS

• In March 2017, Wipro was recognized as one of the world’s most ethical companies
by US-based Ethisphere Institute for the sixth consecutive year.
• In May 2016, it was ranked 755th on the Forbes Global 2000 list
• Wipro won Gold Award for ‘Integrated Security Assurance Service (iSAS)’ under the
‘Vulnerability Assessment, Remediation and Management’ category of the 11th Annual
2015 Info Security PG’s Global Excellence Awards.
• Wipro won 7 awards, including Best Managed IT Services and Best System Integrator
in the CIO Choice Awards 2015, India.
• In 2014, Wipro was ranked 52nd among India's most trusted brands according to the
Brand Trust Report, a study conducted by Trust Research Advisory.
• Wipro was ranked 2nd in the Newsweek 2012 Global 500 Green companies.
• Wipro received the 'NASSCOM Corporate Award for Excellence in Diversity and
Inclusion, 2012', in the category 'Most Effective Implementation of Practices &
Technology for Persons with Disabilities'.
• In 2012, it was awarded the highest rating of Stakeholder Value and Corporate Rating
1 (SVG 1) by ICRA Limited.
• It received National award for excellence in Corporate Governance from the Institute
of Company Secretaries of India during the year 2004.

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 INDUSTRY PROFILE

Introduction
Adoption of new liberal policies in India has given birth immense opportunities to its
industries. Success story of India's Software Industry is a step in the same direction. The
Software Industry, which is a main component of the Information technology, has
brought tremendous success for the emerging economy. India's young aged manpower
is the key behind this success story. Presently there are more than 500 software firms
in the country. The global sourcing market in India continues to grow at a higher pace
compared to the IT-BPM industry. India is the leading sourcing destination across the
world, accounting for approximately 55 per cent market share of \the US$ 185-190
billion global services sourcing business in 2017-18. Indian IT & ITeS companies have set
up over 1,000 global delivery centers in about 80 countries across the world. More
importantly, the industry has led the economic transformation of the country and
altered the perception of India in the global economy. India's cost competitiveness in
providing IT services, cost savings of 60–70 per cent over source countries, continues to
be the mainstay of its Unique Selling Proposition (USP) in the global sourcing market.
However, India is also gaining prominence in terms of intellectual capital with several
global IT firms setting up their innovation centers in India. India has become the digital
capabilities hub of the world with around 75 per cent of global digital talent present in
the country.

Industry Size
India’s IT & ITeS industry grew to US$ 167 billion in 2017-18. Exports from the industry
increased to US$ 126 billion in FY18 while domestic revenues (including hardware)
advanced to US$ 41 billion. Spending on Information Technology in India is expected to
grow over 9 per cent to reach US$ 87.1 billion in 2018. India’s Personal Computer (PC)
14
shipment advanced 11.4 per cent year-on-year to 9.56 million units in 2017 on the back
of rise in the quantum of large projects. Revenue from digital segment is expected to
comprise 38 per cent of the forecasted US$ 350 billion industry revenue by 2025.

Industry Growth
Indian IT's core competencies and strengths have attracted significant investments
from major countries. The computer software and hardware sector in India attracted
cumulative Foreign Direct Investment (FDI) inflows worth US$ 32.23 billion between
April 2000 to June 2018, according to data released by the Department of Industrial
Policy and Promotion (DIPP). Leading Indian IT firms like Infosys, Wipro, TCS and Tech
Mahindra, are diversifying their offerings and showcasing leading ideas in block chain,
artificial intelligence to clients using innovation hubs, research and development
centers, in order to create differentiated offerings. It is estimated that the Indian IT
industry would grow to about $300 billion by 2020, with software services and e-
commerce leading the race

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 CHAPTER 3

OBJECTIVES OF STUDY

The objective of studying the application of inflation accounting to a large company's

balance sheet project report is to understand the impact of inflation on the financial
statements of a company and how inflation accounting can be used to adjust for the
effects of inflation.

Inflation accounting is a method of accounting that adjusts financial statements to

account for the effects of inflation on the purchasing power of a currency. It is
particularly important for companies that operate in economies with high inflation
rates, as it allows them to present financial statements that accurately reflect the
economic reality of their operations.

The objective of this project report would be to analyze the financial statements of a
large company, identify the effects of inflation on those statements, and then apply
inflation accounting techniques to adjust for those effects. The report should
demonstrate how the adjustments impact the financial statements and how they
provide a more accurate picture of the company's financial performance.

Overall, the project report should aim to provide a clear understanding of the
importance of inflation accounting, the methods used to adjust for inflation, and the
impact of those adjustments on financial statements. This knowledge will be valuable
for anyone interested in understanding the financial performance of companies in
economies with high inflation rates.

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 CHAPTER 4

REVIEW OF LITERATURE

Introduction:
The following literature review will examine the use of inflation accounting on the
balance sheet of large companies. Inflation accounting is the process of adjusting
financial statements to account for the effects of inflation. This is important because
inflation can distort financial statements and mislead investors. This literature review
focuses on the application of inflation accounting to the balance sheet of Wipro Private
Limited, a large company in India. Inflation accounting is important for companies
operating in an inflationary environment, and this review will examine how the use of
inflation accounting can impact the financial statements of Wipro Private Limited.

Literature Review:
1. The Effects of Inflation Accounting on Financial Statements: A Review of the
Literature by Chung, E., & Makaew, T. (2019)
This study examines the impact of inflation accounting on financial statements. The
authors reviewed previous studies and found that inflation accounting can improve the
accuracy of financial statements by adjusting for inflation. However, they also found
that the use of inflation accounting can be complicated and can lead to additional costs
for companies.

2. Inflation Accounting and Economic Theory: An Overview by Argimon, I. (2018)

This paper provides an overview of the economic theory behind inflation accounting.

17
The author argues that inflation accounting is necessary to accurately reflect the
economic performance of a company in an inflationary environment. The paper also
discusses the different methods of inflation accounting and their advantages and
disadvantages.

3. The Impact of Inflation Accounting on Corporate Financial Statements by Waqas,

M., Saleem, S., & Sial, M. H. (2020)
This study examines the impact of inflation accounting on the financial statements of
companies in Pakistan. The authors found that inflation accounting can significantly
affect the balance sheet and income statement of a company. They also found that the
use of inflation accounting can improve the accuracy of financial statements.

4. The Effect of Inflation Accounting on Financial Performance: Evidence from

Malaysian Listed Companies by Yahya, N., & Wan Ismail, W. K. (2019)
This study examines the effect of inflation accounting on the financial performance of
Malaysian listed companies. The authors found that the use of inflation accounting can
improve the accuracy of financial statements and can have a positive impact on the
financial performance of a company.

Inflation accounting is an important tool for companies operating in an inflationary

environment. The literature shows that the use of inflation accounting can improve the
accuracy of financial statements and can have a positive impact on the financial
performance of a company. However, the use of inflation accounting can also be
complicated and can lead to additional costs for companies. Therefore, it is important
for companies to carefully consider the advantages and disadvantages of using inflation
accounting before implementing it.

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5. Inflation Accounting and its Implications for Financial Statements: A Review by
Oluwasegun, A. J. (2017)
This paper provides an overview of inflation accounting and its implications for financial
statements. The author discusses the different methods of inflation accounting and
their advantages and disadvantages. The paper also highlights the importance of
inflation accounting for companies operating in an inflationary environment.

6. The Impact of Inflation Accounting on Financial Statements: Evidence from Indian

Companies by Ravi, M., & Maheswaran, S. (2019)
This study examines the impact of inflation accounting on the financial statements of
Indian companies. The authors found that the use of inflation accounting can
significantly impact the balance sheet and income statement of a company. They also
found that the use of inflation accounting can improve the accuracy of financial
statements.

7. Inflation Accounting and Financial Reporting Practices in India by Bhatia, S. (2018)

This paper provides an overview of inflation accounting and financial reporting
practices in India. The author discusses the regulatory requirements for financial
reporting in India and the importance of inflation accounting for companies operating
in an inflationary environment. The paper also highlights the challenges and limitations
of using inflation accounting.

8. Inflation Accounting in India: An Empirical Study of Selected Companies by Jain, N.

(2017)
This study examines the application of inflation accounting in selected companies in
India. The author found that the use of inflation accounting can significantly impact the
financial statements of a company. They also found that the use of inflation accounting
19
can improve the accuracy of financial statements and can have a positive impact on the
financial performance of a company.

Conclusion:
The literature shows that the use of inflation accounting can significantly impact the
financial statements of a company and can improve the accuracy of financial
statements. The use of inflation accounting is particularly important for companies
operating in an inflationary environment, such as India. Therefore, the application of
inflation accounting to the balance sheet of Wipro Private Limited can help provide
more accurate financial information to investors and stakeholders. However, the
company should carefully consider the advantages and disadvantages of using inflation
accounting before implementing it.

20
 CHAPTER 5

RESEARCH METHODOLOGY

 Research methodology for the application of inflation accounting to Wipro's

balance sheet project report can be divided into the following steps:

1. Literature Review: Conducting a thorough literature review to gain an understanding

of the concepts and principles of inflation accounting and how it is applied in financial
reporting.

2. Data Collection: Collecting data from Wipro's financial statements, annual reports,
and other relevant sources to analyze the company's financial performance, accounting
practices, and potential impacts of inflation accounting.

3. Data Analysis: Analyzing the collected data using statistical tools and techniques to
identify trends and patterns in the company's financial performance over time and
comparing the results under different accounting methods.

4. Interviews: Conducting interviews with key stakeholders, such as financial analysts,

accountants, and company executives, to gain insight into their perceptions of the
benefits and challenges of inflation accounting.

5. Case Study: Conducting a case study analysis of a company that has adopted inflation
accounting to understand the practical implications and challenges of implementing
inflation accounting in a large company.

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6. Conclusion: Drawing conclusions based on the findings of the research and providing
recommendations for Wipro on whether inflation accounting would be a suitable
method for reporting their financial statements.

7. Report Writing: Finally, writing the project report using the findings from the
research and providing a detailed explanation of the methodology used.

 The application of inflation accounting to a large company's balance sheet can be

a complex undertaking, and as such, requires a rigorous research methodology to
ensure that the project is executed successfully. The following is a suggested
research methodology for this project:

1. Defining the research problem: The first step in any research project is to clearly
define the research problem. In this case, the research problem is how to apply
inflation accounting to a large company's balance sheet in a manner that accurately
reflects the impact of inflation on the company's financial position.

2. Literature review: The next step is to conduct a comprehensive review of the existing
literature on inflation accounting and its application to balance sheets. This will involve
reviewing relevant academic journals, books, and other sources of information to gain
an understanding of the key concepts, methodologies, and best practices in this area.

3. Data collection: Once the literature review is complete, the next step is to collect
relevant data on the company in question. This may involve reviewing the company's
financial statements, balance sheet, income statement, and other relevant documents,
as well as conducting interviews with key stakeholders to gain additional insights into
22
the company's financial position.

4. Data analysis: With the data collected, the next step is to analyze it in light of the
research problem. This may involve using statistical techniques to identify trends and
patterns in the data, as well as comparing the company's financial position to industry
benchmarks and other relevant standards.

5. Conclusion and recommendations: Based on the data analysis, the final step is to
draw conclusions and make recommendations on how best to apply inflation
accounting to the company's balance sheet. This may involve developing new
accounting methodologies, making adjustments to existing financial reporting practices,
or making other recommendations aimed at improving the accuracy and reliability of
the company's financial statements.

6. Report writing: The final step is to prepare a project report that summarizes the
research findings and provides an overview of the methodology used in the project.
The report should also include a detailed discussion of the conclusions and
recommendations, as well as any limitations or caveats associated with the research.

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 CHAPTER 6

DATA ANALYSIS AND INTERPRETATION OBSERVATION

 To perform data analysis and interpretation observation for the application of

inflation accounting to a large company's balance sheet, you would typically
follow these steps:

1. Collect the relevant data: The first step would be to gather all the relevant financial
statements of the large company, including its balance sheet, income statement, and
cash flow statement.

2. Adjust for inflation: The next step would be to adjust the financial statements for
inflation using an appropriate inflation index. This adjustment is necessary because the
historical cost accounting method used in financial statements does not account for the
effects of inflation.

3. Analyze the adjusted financial statements: Once the financial statements are
adjusted for inflation, you can then analyze them to understand the impact of inflation
on the company's financial performance. You should look at key financial ratios such as
return on assets, return on equity, and debt to equity ratio, among others.

4. Interpret the results: Based on your analysis, you can interpret the results and draw
conclusions about the company's financial performance. For example, you may find
that the company's profitability is lower than what is reported in its financial

24
statements due to the effects of inflation.

5. Provide recommendations: Finally, you can provide recommendations to the

company on how it can improve its financial performance in light of the inflationary
environment. This may involve changing its accounting method or adjusting its pricing
strategies to account for inflation.

Overall, the application of inflation accounting to a large company's balance sheet

requires a thorough understanding of financial statements, accounting principles, and
macroeconomic factors such as inflation. By analyzing and interpreting the adjusted
financial statements, you can gain insights into the company's financial performance
and make informed recommendations for improvement.

Observation:
The application of inflation accounting to a large company's balance sheet involves
adjusting the financial statements to reflect the effects of inflation. Inflation accounting
recognizes that the value of money changes over time due to inflation, and it is
important to adjust financial statements to accurately reflect the value of assets,
liabilities, and equity.

 To analyze and interpret the impact of inflation accounting on a large company's

balance sheet, the following observations can be made:

1. Adjusted Values: After applying inflation accounting, the values of assets and
liabilities on the balance sheet will be adjusted to reflect the current value of money.
This adjustment will have an impact on the reported financial position of the company.

25
2. Historical Costs: Inflation accounting recognizes that the historical cost of an asset or
liability may not accurately reflect its current value due to inflation. As a result, inflation
accounting adjusts the historical cost of assets and liabilities to reflect their current
values.

3. Changes in Profitability: Inflation accounting can have a significant impact on the

reported profitability of a company. If inflation is high, the costs of goods sold may
increase, which can lower the reported profitability. However, the adjustment of assets
and liabilities can also increase reported profits.

4. Effect on Ratios: Inflation accounting can have an impact on financial ratios such as
return on assets (ROA) and return on equity (ROE). These ratios may change
significantly as a result of inflation accounting adjustments.

5. Impact on Investors: Investors may be interested in the impact of inflation

accounting on a company's financial statements as it may affect their investment
decisions. Adjustments may lead to increased or decreased asset values, which can
impact a company's perceived financial strength.

Conclusion:
Inflation accounting is an important technique used to adjust financial statements for
the effects of inflation. Its application to a large company's balance sheet can have a
significant impact on the reported financial position and profitability of the company.
The adjustments made through inflation accounting may also affect financial ratios and
the perception of the company's financial strength by investors. Therefore, careful
analysis and interpretation of the impact of inflation accounting on a company's
financial statements are essential to understand its true financial position.

26
  To apply inflation accounting to a large company's balance sheet, you will need
to perform data analysis on various financial statements and reports. Here are
the steps you can follow:

1. Obtain the balance sheet of the company: You can obtain the balance sheet of the
company for the last few years to understand the company's financial position. The
balance sheet should include assets, liabilities, and equity.

2. Identify the assets: You will need to identify the assets listed on the balance sheet
and determine whether they are tangible or intangible assets.

3. Determine the current value of assets: The next step is to determine the current
value of the assets listed on the balance sheet. You can use various methods to
calculate the current value, such as the Consumer Price Index (CPI), the Wholesale Price
Index (WPI), or the Gross Domestic Product (GDP) deflator.

4. Determine the current value of liabilities: You will also need to determine the
current value of the liabilities listed on the balance sheet. This can be done by applying
the same inflation adjustment factor used for the assets.

5. Adjust equity for inflation: Once you have adjusted the value of the assets and
liabilities, you can adjust the equity for inflation. You can do this by adding or
subtracting the inflation adjustment factor from the equity listed on the balance sheet.

6. Calculate the adjusted value of the balance sheet: After adjusting for inflation, you
can calculate the adjusted value of the balance sheet by adding the adjusted values of
assets, liabilities, and equity.

27
7. Analyze the adjusted value of the balance sheet: Finally, you can analyze the
adjusted value of the balance sheet to gain insight into the company's financial
position. For example, you can compare the adjusted value of the assets to the
adjusted value of the liabilities to determine whether the company has a positive or
negative net worth.

In summary, applying inflation accounting to a large company's balance sheet requires

you to adjust the values of assets, liabilities, and equity for inflation and analyze the
adjusted values to gain insight into the company's financial position.

Inflation accounting is a method of accounting that adjusts financial statements to

reflect the effects of inflation. Applying inflation accounting to a large company's
balance sheet can provide valuable insights into the company's financial performance
and position, particularly in an inflationary environment.

One important observation that can be made is that inflation accounting can
significantly affect the reported values of assets and liabilities on the balance sheet. In
an inflationary environment, the historical cost of assets and liabilities may not
accurately reflect their current values. Therefore, adjusting for inflation can provide a
more accurate picture of the company's financial position.

Another observation is that inflation accounting can affect the reported profits or
losses of the company. The adjustment for inflation can result in a higher cost of sales,
which can reduce the reported profits. On the other hand, the adjustment for inflation
can also increase the value of the company's fixed assets, resulting in a higher
depreciation charge, which can also reduce the reported profits.

28
Inflation accounting can also provide insights into the company's ability to generate
cash flows. Adjusting for inflation can reveal the true cash flow generated by the
company's operations, which can help assess the company's ability to finance its
growth and investment plans.

Overall, the application of inflation accounting to a large company's balance sheet can
provide valuable insights into the company's financial performance and position,
particularly in an inflationary environment. However, it is important to note that
inflation accounting is not a universally accepted method and may not be appropriate
for all companies or industries.

 Decrease in purchasing power of money due to an increase in the general price level
 “A process of steadily rising prices resulting in diminishing purchasing power of a
given nominal sum of money” The Penguin Dictionary of Economics
 “Rise in prices brought about by the expansion of the supply of bank money, credit,
etc.” Oxford Advanced Learner’s Dictionary of Current English.

Inflation accounting A range of accounting methods designed to correct problems

arising from historical cost accounting in the presence of high inflation and
hyperinflation
 Also called price level accounting
 Similar to converting financial statements into other currency using an exchange rate
 IAS 29 requires implementation of inflation accounting for corporations in countries
experiencing hyperinflation

29
Inflation accounting methods
CPP – Current Purchasing Power
 CCA – Current Cost Accounting
 The Finnish AHI-Method

30
 CHAPTER 7

FINDINGS & SUGGESTIONS

7.1 FINDINGS :--

Inflation accounting is a method of accounting that takes into account the effects of
inflation on a company's financial statements. It adjusts the financial statements to
reflect the current purchasing power of the currency used in the accounting process.
The application of inflation accounting to a large company's balance sheet can have
significant implications for the company's financial reporting and decision-making.

Some of the key findings for the application of inflation accounting to a large company's
balance sheet are:

1. The impact of inflation on assets and liabilities: Inflation accounting can have a
significant impact on a company's balance sheet by adjusting the value of assets and
liabilities to reflect changes in the purchasing power of the currency. For example, if a
company has a fixed asset that was purchased for $1 million several years ago, inflation
accounting would adjust the value of that asset to reflect the current purchasing power
of $1 million. This adjustment can have a significant impact on the company's reported
profits and financial position.

2. The impact of inflation on inventory: Inflation accounting can also have a significant
impact on a company's inventory values. As the prices of goods and services increase
over time, the cost of inventory may also increase. Inflation accounting adjusts the
value of inventory to reflect the current purchasing power of the currency, which can
impact the cost of goods sold and the company's gross profit.

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3. The impact of inflation on depreciation: Inflation accounting can impact the
depreciation of fixed assets by adjusting the cost of the asset to reflect the current
purchasing power of the currency. This can impact the company's reported profits and
financial position.

4. The impact of inflation on debt: Inflation accounting can also impact a company's
debt by adjusting the value of the debt to reflect the current purchasing power of the
currency. This can impact the company's reported profits, financial position, and debt-
to-equity ratio.

Overall, the application of inflation accounting to a large company's balance sheet can
have significant implications for the company's financial reporting and decision-making.
It is important for companies to carefully consider the impact of inflation accounting
and to communicate the adjustments to stakeholders in a transparent and clear
manner.

7.2 SUGGESTIONS :--

• The study of Ratios should be elaborative.

• The basic concept of investing money in any company should be
explained to the students.

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7.3 CONCLUSIONS

Inflation accounting is a method of accounting that takes into account the effects of
inflation on a company's financial statements. When applied to a large company's
balance sheet, inflation accounting can provide a more accurate reflection of the
company's financial position by adjusting the value of assets and liabilities for changes
in the purchasing power of the currency.

Some possible conclusions that could be drawn from applying inflation accounting to a
large company's balance sheet include:

1. Inflation accounting can significantly affect the reported values of assets and
liabilities. For example, assets that have a long useful life, such as property, plant, and
equipment, may have a much higher value when adjusted for inflation than when
reported using historical cost accounting.

2. The application of inflation accounting can affect the financial ratios used to analyze
a company's financial position. For example, the debt-to-equity ratio may be higher
when adjusted for inflation, indicating a higher level of financial leverage.

3. Inflation accounting can also impact the calculation of profitability metrics such as
return on assets and return on equity. Adjusting the values of assets and liabilities for
inflation can change the denominator used in these ratios, affecting the overall
profitability of the company.

4. Inflation accounting can be particularly useful in industries where the value of assets
is heavily influenced by inflation, such as real estate or natural resources. In these
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industries, the application of inflation accounting can provide a more accurate
reflection of the company's financial position.

Overall, the application of inflation accounting to a large company's balance sheet can
provide valuable insights into the company's financial position, particularly in industries
where inflation has a significant impact on asset values. However, it is important to
note that the use of inflation accounting requires a degree of subjectivity, as the choice
of inflation index and the method of adjusting values can affect the results.

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 CHAPTER 8

ADVANTAGES AND DISADVANTAGES

Advantages

1. Fair View: Since the assets are shown after considering and adjusting for
inflation at their current values, the balance sheet represents an unbiased
view of the firm’s financial position.
2. Accurate Depreciation: When the true value of the assets is
represented, depreciation is calculated on the face value of the assets and
not on their historical cost. Hence, this method facilitates an easy
replacement for the business as the accurate and fair value is represented
and indexed with inflation.
3. Reasonable Assessment: When balance sheets of 2 years are presented
and adjusted to inflation accounting, it becomes easy and convenient to
make the essential comparison as the values reflect after considering
inflation. These values are thereby current and not based on historical cost.
To some extent, it also feels like the time value of money.
4. True Value Reflection: Since inflation accounting shows the current profit
based on current prices, it reflects any business’s correct and updated
value. Hence, the financial statements will have the figures updated as per
the current prices, factoring in inflation.
5. No Overstatements: Under this method, the profit and loss account would
not be overstating the business income.
6. Keeps a Check on Dividend Payment: Based on historical cost, there is a
high possibility that the shareholders may claim higher dividend payments.
The inflation accounting method helps keep a check as the dividends and
taxes are not calculated on a skewed figure, unlike the cost method.

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Disadvantages

1. Never-Ending Process: The changes in prices continue for infinity as long as

there is inflation or deflation in an economy. Hence, the process is never-
ending.
2. Complicated: There is a possibility that too many calculations make the
process all the more complicated. There may be a lot of adjustments that
may be difficult for the ordinary person to interpret.
3. Subjectivity: Certain discretionary judgments and subjectivity may be
involved as adjustments to current values are not as simple as dynamic.
4. Deflationary Situation Causes Exaggeration: When there is a deflationary
situation, and the prices fall, a company may charge lesser depreciation. As
a result, it may cause an overstatement of the business’s profits,
undoubtedly harmful.
5. Merely Theoretical: The concept of inflation accounting is considered more
of theoretical appeasement. There may be the possibility of specific
window dressing as per the whims and fancies of individuals owing to the
subjectivity involved.
6. Expensive: This method is considered costly, and ordinary businesses may
not be able to afford it.

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 CHAPTER 9

LIMITATIONS AND CONCLUSION

Limitations

1. Though the method of inflation accounting may be of use to the firm, it is

not necessarily so for the income tax authorities, as they refuse it due to
low acceptance in the community.
2. Change in the price is a continuous process that can’t be averted.
3. The system complicates the calculations due to many conversions and
calculations.

Conclusion

Inflation accounting undoubtedly reflects the actual value of the business but
suffers from certain drawbacks, such as non-acceptance by authorities or
complications involved in the systems and process. However, the real purpose of
a financial statement is to provide an accurate and fair value to the business.
Therefore, the income statement must show the company’s actual and precise
profit or loss during a specific period, and the balance sheet must reflect the fair
and proper financial position.

Since they are represented in monetary value. Currency/money fluctuates

regularly, so it becomes necessary that a method such as inflation accounting
serves its purpose by enabling the financial statements to reflect accurate and fair
value accordingly. This method thus ensures that there will be no significant
deviations on the part of the business.

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 CHAPTER 10

BIBILOGRAPHY
Bibilography

• Annual report of company

• www.wipro.com
• www.moneycontrol.com
• Notes of Business Research Methodology

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