By R W Scapens

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P. P. profit numbers will be lower on average than conventionally reported profit has led some businessmen to the conclusion that companies are being 'over-taxed'. This conclusion is suggested because taxation assessments are based on the reported historical-cost profits. However, it relies on the assumption that the tax rate is independent of the tax base adopted. This may not be an appropriate assumption. It is possible that the tax burden of the corporate sector will be computed by an equitable division of the total burden between the various sectors within the economy.

However, even with annual rates of inflation in the region of 25 per cent the effect of changes in the value of money on the profit 22 Accounting in an Inflationary Environment reported for January 19X4 is unlikely to be material. But this is due to the simplicity of the illustration. If the holding period for resale items was six months, profit would be calculated by comparing sales in January 19X4 with costs incurred (and measured) in the previous July. A decline of, say, 12! per cent in the value of money during that period would have a material effect on the cost of sales.

A business undertakes various exchanges of resources and distributes any surplus to its owners. ) The ability of an asset to generate resources in the exchange process indicates its value to the business. This may be called 'exchange value', which can be measured in money units. The market price of any resource reflects its exchange value at a particular date. But as prices change so also do exchange values. Current- Value Accounting I- Concepts 49 Thus, to value assets at their exchange values, it is essential to determine the appropriate date for recording market prices.

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