# ASC 255-10-55: Changing Prices — Overall — 55 Implementation Guidance and Illustrations

Source: FASB Accounting Standards Codification, Basic View

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## ASC 255-10-55: 55 Implementation Guidance and Illustrations

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#### Implementation Guidance

##### [255-10-55-1](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-1)

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Paragraphs 255-10-55-1 through 55-13 of this Section provide guidance on the interpretation of paragraphs

[255-10-50-50 through 50-55](https://asc.understandingaccounting.org/asc/255/10/#255-10-50-50)

for the classification of certain asset and liability items as monetary or nonmonetary. The following table illustrates the application of the definitions to common cases under typical circumstances. In other circumstances the classification should be resolved by reference to the definitions. Paragraphs 255-10-55-1 through 55-13 are not intended to provide answers that should be followed regardless of the circumstances of the case.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-4D03BAA7-1780-46FA-8422-730001ADC14B-low.gif)
    
    Assets Monetary Nonmonetary Cash on hand and demand bank deposits (dollars) X Time deposits (dollars) X Foreign currency on hand and claims to foreign currency (a) X Securities: Common stocks (not accounted for on the equity method) X Common stocks represent residual interests in the underlying net assets and earnings of the issuer. Preferred stock (convertible or participating) Circumstances may indicate that such stock is either monetary or nonmonetary. See convertible bonds. "Preferred stock (nonconvertible, nonparticipating)" X Future cash receipts are likely to be substantially unaffected by changes in specific prices. Convertible bonds "If the market values the security primarily as a bond, it is monetary; if it values the security primarily as stock, it is nonmonetary." Bonds (other than convertibles) X "Trading account investments in fixed-income securities owned by banks, investment brokers, and others (see paragraphs 255-10-55-2 through 55-3)" X Accounts and notes receivable X Allowance for doubtful accounts and notes receivable X Variable-rate mortgage loans X "The terms of such loans do not link them directly to the rate of inflation. Also, there are practical reasons for classifying all loans as monetary." Inventories used on contracts "They are, in substance, right to receive sums of money if the future cash receipts on the contracts will not vary due to future changes in specific prices. Goods used on contracts to be priced at market upon delivery are nonmonetary." Inventories (other than inventories used on contracts) and commodity inventories (other than those described below) X Commodity inventories whose values are hedged by futures contracts whose contract amounts have not been recorded in the financial statements See paragraphs 255-10-55-4 through 55-5. Loans to employees X "Prepaid insurance, advertising, rent, and other prepayments" "Claims to future services are nonmonetary. Prepayments that are deposits, advance payments, or receivables are monetary because the prepayment does not obtain a given quantity of future services, but rather is a fixed-money offset." Long-term receivables X Refundable deposits X Advances to unconsolidated subsidiaries X Equity investment in unconsolidated subsidiaries or other investees X "Pension, sinking, and other funds under an entity's control" The specific assets in the fund should be classified as monetary or nonmonetary. See listings under securities. "Property, plant, and equipment" X "Accumulated depreciation of property, plant, and equipment" X "The unguaranteed residual value of property owned by a lessor and leased under direct financing, sales-type, and leveraged leases" See paragraphs 255-10-55-6 through 55-7. "Investment tax credits that are deferred by a lessor as part of the unearned income of a leveraged lease" See paragraphs 255-10-55-8 through 55-9. Portion of the carrying amount of lessors' assets leased under noncancellable operating leases that represent claims to fixed sums of money (see paragraphs .255-10-55-10 through 55-11) X Cash surrender value of life insurance X Purchase commitments—portion paid on fixed-price contracts X An advance on a fixed-price contract is the portion of the purchaser's claim to nonmonetary goods or services that is recognized in the accounts; it is not a right to receive money. Advances to supplier—not on a fixed-price contract "Such advances are rights to receive credit for a sum of money, not claims to a specified quantity of goods or services." X Deferred tax assets (a) X "Patents, trademarks, licenses, and formulas" X Goodwill X Deferred life insurance policy acquisition costs (a) X Such costs represent the portion of future cash receipts for premiums that is recognized in the accounts and are sometimes viewed as an offset to the policy reserve. Deferred property and casualty insurance policy acquisition costs related to unearned premiums X Other intangible assets and deferred charges X
    
-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-77B0B17D-F5E5-47FF-B38B-1F51F35BD568-low.gif)
    
    Liabilities Monetary Nonmonetary Accounts and notes payable X Accrued expenses payable (wages and so forth) X Accrued vacation pay "If to be paid at the wage rates as of the vacation dates and if those rates may vary, accrued vacation pay is nonmonetary." Cash dividends payable X Obligations payable in foreign currency X Sales commitments—portion collected on fixed-price contracts X An advance received on a fixed-price contract is the portion of the seller's obligation to deliver goods or services that is recognized in the accounts; it is not an obligation to pay money. Advances from customers—not on a fixed-price contract X Such advances are equivalent to loans from customers and are not obligations to furnish specified quantities of goods or services. Accrued losses on firm purchase commitments X "In essence, these are accounts payable." Deferred revenue "If an obligation to furnish goods or services is involved, deferred revenue is nonmonetary. Certain deferred income items of savings and loan associations are monetary." Refundable deposits X Bonds payable and other long-term debt X Unamortized premium or discount and prepaid interest on bonds or notes payable X Such items are inseparable from the debt to which they relate—a monetary item. Convertible bonds payable X "Until converted, these are obligations to pay sums of money." Accrued pension obligations Fixed amounts payable to a fund are monetary; all other amounts are nonmonetary. Obligations under warranties X These are nonmonetary because they oblige the entity to furnish goods or services or their future price. Deferred tax liabilities (a) X Deferred investment tax credits X These are not to be settled by payment of cash and are related to nonmonetary assets. Life insurance policy reserves X These represent portions of policies' face values that are now deemed liabilities. Property and casualty insurance loss reserves X Unearned property and casualty insurance premiums X These are nonmonetary because they are principally obligations to furnish insurance coverage. The dollar amount of payments to be made under that coverage might vary materially due to changes in specific prices. Deposit liabilities of financial institutions X Equity Monetary Nonmonetary Capital stock of the entity or of its consolidated subsidiaries subject to mandatory redemption at fixed amounts (see paragraph 255-10-55-13) X Noncontrolling interests in consolidation subsidiaries (see paragraph 255-10-55-12) X (a) "Although classification of this item as nonmonetary may be technically preferable, the monetary classification provides a more practical solution for the purposes of computing the purchasing power gain or loss on a consolidated basis."

##### [255-10-55-2](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-2)

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Trading account securities are securities of all types carried in a trading account that are held principally for resale. These securities generally are carried at [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date."). Trading account investments include both fixed-income securities (for example, nonconvertible preferred stock, convertible bonds, and other bonds) and other securities (for example, common stock). Usually, trading account securities are held for extremely short periods of time—sometimes for only a few hours. Frequently, the entity buys and sells the securities expecting to make a profit on the difference between dealer and retail, or bid and ask, prices rather than on price changes during the period securities are held. However, the prices of the securities change with market forces.

##### [255-10-55-3](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-3)

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Trading account investments in fixed-income securities are not claims to receive sums of money that are fixed or determinable. The market prices of the securities might and frequently do change while the securities are held. Generally, nonconvertible and nonparticipating preferred stock, convertible bonds that the market values primarily as bonds rather than as stocks, and nonconvertible bonds should be classified as monetary items. However, those classifications are based, in part, on the assumption that those securities would be held for long periods, if not to maturity. Trading account investments, on the other hand, are held for shorter periods and their value depends much less heavily on the general purchasing power of money and more on the specific values of the securities. Therefore, trading account investments in fixed-income securities should be classified as nonmonetary.

##### [255-10-55-4](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-4)

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Many entities hedge commodity inventories (such as grain or metals). Short hedges are designed to provide a degree of assurance that a decline in the price of the commodity would be offset by an increase in the value of the hedge contract. Short hedges thus tend to reduce the effects of price changes on the inventory that is hedged.

##### [255-10-55-5](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-5)

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There are certain similarities between inventories that are hedged and inventories that are used on or committed to a fixed-price contract. In each case, the risk of gain or loss due to price changes before the inventory is sold is largely or entirely eliminated. To the extent that hedges fix the value of an inventory in dollars (or units of foreign functional currency, if appropriate), the inventory effectively becomes a monetary item.

##### [255-10-55-6](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-6)

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The [unguaranteed residual value](https://asc.understandingaccounting.org/glossary/u/#unguaranteed-residual-value "The estimated residual value of the leased property exclusive of any portion guaranteed by the lessee or by a third party unrelated to the lessor. A guarantee by a third party related to the lessee shall be considered a lessee guarantee. If the guarantor is related to the lessor, the residual value shall be considered as unguaranteed.") is included with the minimum lease payments, at present value, in the net investment in the lease.

##### [255-10-55-7](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-7)

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The minimum lease payments are monetary items because they are claims to fixed sums of money. The residual value is not a claim to a fixed sum of money, so it is a nonmonetary item. Some assets and liabilities, of which the net investment in the lease is a good example, are combinations of claims to (or obligations of) fixed amounts and claims to (or obligations of) variable amounts. Ideally, those claims should be separated for purposes of classifying them as monetary and nonmonetary. However, if the information necessary to make the separation is not available or is impracticable to obtain, such items need not be divided into monetary and nonmonetary components and would be classified according to their dominant element. If the net investment in leases is principally claims to fixed amounts, it would be classified as monetary; it would be classified as nonmonetary if it is principally claims to residuals.

##### [255-10-55-7A](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-7A)

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The [lease receivable](https://asc.understandingaccounting.org/glossary/l/#lease-receivable "A lessor's right to receive lease payments arising from a sales-type lease or a direct financing lease plus any amount that a lessor expects to derive from the underlying asset following the end of the lease term to the extent that it is guaranteed by the lessee or any other third party unrelated to the lessor, measured on a discounted basis.") arising from a [sales-type lease](https://asc.understandingaccounting.org/glossary/s/#sales-type-lease "From the perspective of a lessor, a lease that meets one or more of the criteria in paragraph 842-10-25-2 and is not an operating lease in accordance with paragraph 842-10-25-3A.") or a [direct financing lease](https://asc.understandingaccounting.org/glossary/d/#direct-financing-lease "From the perspective of a lessor, a lease that meets none of the criteria in paragraph 842-10-25-2 but meets the criteria in paragraph 842-10-25-3(b)and is not an operating lease in accordance with paragraph 842-10-25-3A.") is a monetary item because it is a claim to a fixed sum of money. The [unguaranteed residual asset](https://asc.understandingaccounting.org/glossary/u/#unguaranteed-residual-asset "The amount that a lessor expects to derive from the underlying asset following the end of the lease term that is not guaranteed by the lessee or any other third party unrelated to the lessor, measured on a discounted basis.") arising from a sales-type lease or a direct financing lease is not a claim to a fixed sum of money, so it is a nonmonetary item. Some assets and liabilities, of which the [net investment in the lease](https://asc.understandingaccounting.org/glossary/n/#net-investment-in-the-lease "For a sales-type lease, the sum of the lease receivable and the unguaranteed residual asset. For a direct financing lease, the sum of the lease receivable and the unguaranteed residual asset, net of any deferred selling profit.") is a good example, are combinations of claims to (or obligations of) fixed amounts and claims to (or obligations of) variable amounts. Because the net investment in a sales-type or direct financing lease is predominantly a claim to a fixed sum of money, it should be classified as monetary. In accordance with Subtopic 842-30, a [lessor](https://asc.understandingaccounting.org/glossary/l/#lessor "An entity that enters into a contract to provide the right to use an underlying asset for a period of time in exchange for consideration.") includes the unguaranteed residual asset as part of its net investment in the lease. Consequently, the unguaranteed residual asset is accounted for in the same manner as a monetary item so long as it is part of the net investment in the lease. If the lessor sells the lease receivable but retains an interest in the unguaranteed residual asset, the remaining unguaranteed residual asset is accounted for as a nonmonetary item after the sale of the lease receivable.

##### [255-10-55-8](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-8)

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Under paragraph [842-50-35-2](https://asc.understandingaccounting.org/asc/842/50/#842-50-35-2), the deferred investment tax credit related to the [underlying asset](https://asc.understandingaccounting.org/glossary/u/#underlying-asset "An asset that is the subject of a lease for which a right to use that asset has been conveyed to a lessee. The underlying asset could be a physically distinct portion of a single asset.") is subtracted from rentals receivable and estimated residual value as part of the calculation of the lessor's investment in the [leveraged lease](https://asc.understandingaccounting.org/glossary/l/#leveraged-lease "From the perspective of a lessor, a lease that was classified as a leveraged lease in accordance with the leases guidance in effect before the effective date and for which the commencement date is before the effective date."). The lessor's investment in a leveraged lease, including the deferred investment tax credit related to the leveraged lease, is presented as one amount in the balance sheet. As indicated in paragraph [255-10-55-7](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-7), the investment in a leveraged lease would be classified as monetary or nonmonetary according to its dominant element.

##### [255-10-55-9](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-9)

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As indicated in the table in paragraph [255-10-55-1](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-1), a deferred investment tax credit should be classified as nonmonetary but, if it is part of an investment in a leveraged lease and if the information necessary to separate its elements is not available or is impracticable to obtain, the investment would be classified according to its dominant element.

##### [255-10-55-10](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-10)

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These assets are carried at depreciated [historical cost](https://asc.understandingaccounting.org/glossary/h/#historical-cost "The generally accepted method of accounting used in the primary financial statements that is based on measures of historical prices without restatement into units, each of which has the same general purchasing power.") under generally accepted accounting principles (GAAP) and are classified with or near property, plant, and equipment, which are nonmonetary.

##### [255-10-55-11](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-11)

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The classification of a [lease](https://asc.understandingaccounting.org/glossary/l/#lease "A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.") as an operating lease under paragraphs

[842-10-25-2 through 25-3](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-2)

indicates that the lessee has not obtained control of the nonmonetary [underlying asset](https://asc.understandingaccounting.org/glossary/u/#underlying-asset "An asset that is the subject of a lease for which a right to use that asset has been conveyed to a lessee. The underlying asset could be a physically distinct portion of a single asset.") as a result of the lease. Thus, the economic significance of the asset continues to depend heavily on the value of the future lease rentals, residual values, and associated costs that do not represent fixed sums of money. Therefore, an asset subject to an operating lease should be classified as nonmonetary.

##### [255-10-55-12](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-12)

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The interests of noncontrolling shareholders in the earnings and equity of subsidiaries are, from the consolidated entity's point of view, claims that are not fixed. Rather, they are residuals that will vary based on the subsidiary's earnings, dividends, and other transactions affecting its equity and so are nonmonetary. (See the following paragraph as to classification of capital stock of the entity or of its consolidated subsidiaries subject to mandatory redemption at fixed amounts.)

##### [255-10-55-13](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-13)

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Such securities are claims of the stockholders to a fixed sum of money and therefore are monetary. Classification as a monetary item called for in paragraphs

[255-10-55-1 through 55-13](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-1)

is only for purposes of determining a [purchasing power gain or loss](https://asc.understandingaccounting.org/glossary/p/#purchasing-power-gain-or-loss "The net gain or loss determined by restating in units of constant purchasing power the opening and closing balances of, and transactions in, monetary assets and liabilities."). Those paragraphs do not address how such securities should be classified in balance sheets or the accounting for dividends on those securities.

#### Illustrations

##### [255-10-55-14](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-14)

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This Example illustrates formats that may be used to disclose the information required by this Subtopic for a manufacturing entity. An entity may choose to disclose the information required by paragraphs

[255-10-50-3 through 50-16](https://asc.understandingaccounting.org/asc/255/10/#255-10-50-3)

in any of the following ways:

1.  a
    
    In a schedule of annual information (for example, Schedule 1 or Schedule 2), with notes to those schedules
    
2.  b
    
    In a five-year summary (for example, Schedule 3 or Schedule 4)
    
3.  c
    
    In a five-year summary with notes to that summary (for example, Schedule 5).

##### [255-10-55-15](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-15)

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Many entities include amounts reported in the primary statements alongside [current cost-constant purchasing power](https://asc.understandingaccounting.org/glossary/c/#current-cost-constant-purchasing-power-accounting "A method of accounting based on measures of current cost or lower recoverable amount in units of currency, each of which has the same general purchasing power. For operations in which the dollar is the functional currency, the general purchasing power of the dollar is used and the Consumer Price Index for All Urban Consumers is the required measure of purchasing power. For operations in which the functional currency is other than the dollar, the general purchasing power of either the dollar or the functional currency is used (see paragraphs 255-10-50-45255-10-50-46255-10-50-47).") amounts in the five-year summary.

##### [255-10-55-16](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-16)

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Entities are encouraged to provide more detailed discussions than the illustrative notes in this Example—especially discussion of the significance of the information as it relates to the circumstances of the entity (required by paragraph [255-10-50-10](https://asc.understandingaccounting.org/asc/255/10/#255-10-50-10)) and the principal types of information used to calculate current cost amounts (required by paragraph [255-10-50-16(c)](https://asc.understandingaccounting.org/asc/255/10/#255-10-50-16)). Illustrative calculations are given in paragraphs

[255-10-55-22 through 55-89](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-22)

. In the schedules that follow, the [Consumer Price Index for All Urban Consumers](https://asc.understandingaccounting.org/glossary/c/#consumer-price-index-for-all-urban-consumers "An index of price level changes affecting consumers generally, often used to measure changes in the general purchasing power of the monetary unit itself.") is expressed in average U.S. dollars.

##### [255-10-55-17](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-17)

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The following table illustrates one format for the statement of [income from continuing operations](https://asc.understandingaccounting.org/glossary/i/#income-from-continuing-operations "Income after applicable income taxes but excluding the results of discontinued operations, the cumulative effect of accounting changes, translation adjustments, purchasing power gains and losses on monetary items, and increases and decreases in the current cost or lower recoverable amount of nonmonetary assets and liabilities.") in a schedule of annual information.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-0B5184A6-4A8F-4772-8FDE-0B4BCAD723DE-low.gif)
    
    Schedule 1 STATEMENT OF INCOME FROM CONTINUING OPERATIONS ADJUSTED FOR CHANGING PRICES (a) "For the Year Ended December 31, 19X6 " In Thousands of Average 19X6 Dollars "Income from continuing operations, as reported in the primary income statement" " $22,995 " Adjustments to reflect current costs Cost of goods sold " (8,408)" Depreciation expense " (9,748)" Income from continuing operations adjusted for changes in specific prices " $4,839 " Gain from decline in purchasing power of net amounts owed (b) " $2,449 " "Increase in specific prices (current cost) of inventory and property, plant, and equipment held during the year (c)" " $25,846 " Effect of increase in general price level " 5,388 " Excess of increase in specific prices over increase in the general price level " $20,458 " Foreign currency translation adjustment (d) $(624) (a) "The condensed financial information in this schedule compares selected information from the primary financial statements with information that reflects effects of changes in the specific prices (current cost) of inventory and property, plant, and equipment expressed in units of constant purchasing power. The current cost amounts for inventory and cost of goods sold reflect actual manufacturing costs incurred in 19X6. The current cost amounts for major components of property, plant, and equipment were determined by applying specific price indexes to the applicable historical costs. For assets used in U.S. operations, Producer Price Indexes and Factory Mutual Building Indexes were used; for assets used in foreign operations, appropriate indexes for each country were used. The current cost information is expressed in average 19X6 dollars as measured by the Consumer Price Index for All Urban Consumers." (b) The purchasing power gain on net amounts owed is an economic benefit to the entity that results from being able to repay those amounts with cheaper dollars. (c) "During 19X6, the specific prices (current cost) of inventory increased by $9,108 and of property, plant, and equipment by $16,738. The total increase of $25,846 exceeded the increase necessary to keep pace with general inflation. At December 31, 19X6, the current cost of inventory was $65,700 and of property, plant, and equipment, net of accumulated depreciation, was $89,335 (both measured in December 31, 19X6 units of purchasing power). Those amounts are higher than the amounts in the primary statements of $63,000 for inventory and $45,750 for property, plant, and equipment, net of accumulated depreciation; therefore, it is reasonable to expect income from continuing operations on a current cost basis for 19X7 to remain significantly below that reported in the primary statements." (d) "Current cost amounts for foreign operations are measured in their functional currencies, translated into dollar equivalents using the average exchange rate for the year, and restated into constant units of purchasing power using the Consumer Price Index for All Urban Consumers. Essentially, the foreign currency translation adjustment is the effect of changes in exchange rates during the year on shareholders' equity. The negative translation adjustment indicates that, overall, the dollar has increased in value relative to the functional currencies used to measure the foreign operations of the entity."

##### [255-10-55-18](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-18)

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The following table illustrates one format for the statement of income from continuing operations in a statement of annual information.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-C74DB59F-8E70-47BA-8AAD-3DDFAF110102-low.gif)
    
    Schedule 2 STATEMENT OF INCOME FROM CONTINUING OPERATIONS ADJUSTED FOR CHANGING PRICES (a) "For the Year Ended December 31, 19X6 " In Thousands of Dollars As Reported in the Primary Statements Adjusted for Changes in Specific Prices (Current Cost) Net sales and other operating revenues " $275,500 " " $275,500 " Cost of goods sold " 197,000 " " 205,408 " Depreciation expense " 10,275 " " 20,023 " Other operating expenses " 14,685 " " 14,685 " Interest expense " 7,550 " " 7,550 " Income tax expense " 22,995 " " 22,995 " " 252,505 " " 270,661 " Income from continuing operations " $22,995 " " $4,839 " Gain from decline in purchasing power of net amounts owed (b) " $2,449 " "Increase in specific prices (current cost) of inventory and property, plant, and equipment held during the year (c)" " $25,846 " Effect of increase in general price level " 5,388 " Excess of increase in specific prices over increase in the general price level " $20,458 " Foreign currency translation adjustment (d) $(295) $(624) (a) "The condensed financial information in this schedule compares selected information from the primary financial statements with information that reflects effects of changes in the specific prices (current cost) of inventory and property, plant, and equipment expressed in units of constant purchasing power. The current cost amounts for inventory and cost of goods sold reflect actual manufacturing costs incurred in 19X6. The current cost amounts for major components of property, plant, and equipment were determined by applying specific price indexes to the applicable historical costs. For assets used in U.S. operations, Producer Price Indexes and Factory Mutual Building Indexes were used; for assets used in foreign operations, appropriate indexes for each country were used. The current cost information is expressed in average 19X6 dollars as measured by the Consumer Price Index for All Urban Consumers." (b) The purchasing power gain on net amounts owed is an economic benefit to the entity that results from being able to repay those amounts with cheaper dollars. (c) "During 19X6, the specific prices (current cost) of inventory increased by $9,108 and of property, plant, and equipment by $16,738. The total increase of $25,846 exceeded the increase necessary to keep pace with general inflation. At December 31, 19X6, the current cost of inventory was $65,700 and of property, plant, and equipment, net of accumulated depreciation, was $89,335 (both measured in December 31, 19X6 units of purchasing power). Those amounts are higher than the amounts in the primary statements of $63,000 for inventory and $45,750 for property, plant, and equipment, net of accumulated depreciation; therefore, it is reasonable to expect income from continuing operations on a current cost basis for 19X7 to remain significantly below that reported in the primary statements." (d) "Current cost amounts for foreign operations are measured in their functional currencies, translated into dollar equivalents using the average exchange rate for the year, and restated into constant units of purchasing power using the Consumer Price Index for All Urban Consumers. Essentially, the foreign currency translation adjustment is the effect of changes in exchange rates during the year on shareholders' equity. The negative translation adjustment indicates that, overall, the dollar has increased in value relative to the functional currencies used to measure the foreign operations of the entity."

##### [255-10-55-19](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-19)

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The following table illustrates one format for the five-year comparison of selected financial data.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-E1FE12D7-BBF1-49D8-B824-B0A39EB0437A-low.gif)
    
    Schedule 3 FIVE-YEAR COMPARISON OF SELECTED FINANCIAL DATA ADJUSTED FOR EFFECTS OF CHANGING PRICES(a) "In Thousands of Average 19X6 Dollars, except for Per Share Amounts" "Year Ended December 31," 19X6 19X5 19X4 19X3 19X2 Net sales and other operating revenues " $275,500 " " $247,500 " " $240,000 " " $235,500 " " $265,000 " Income (loss) from continuing operations " 4,839 " " 1,660 " " (2,102)" " (4,663)" " 1,261 " Gain from decline in purchasing power of net amounts owed " 2,449 " " 7,027 " " 5,432 " " 1,247 " " 6,375 " "Excess of increase in specific prices of inventory and property, plant, and equipment over increase in the general price level" " 20,458 " " 2,292 " " 3,853 " " 8,597 " " 3,777 " Foreign currency translation adjustment (624) (386) (454) (293) 127 Net assets at year-end (a) " 92,027 " " 67,905 " " 60,409 " " 56,966 " " 55,705 " Per share information: Income (loss) from continuing operations $3.23 $1.11 $(1.40) $(3.11) $0.84 Cash dividends declared 2 2.06 2.19 2.42 2.75 Market price at year-end 35 39 43 27 32 Average Consumer Price Index (b) 298.4 289.1 272.4 246.8 217.4 (a) "Net assets include inventory and property, plant, and equipment at current cost and all other items as they are reported in the primary financial statements. No adjustment has been made for the lower tax basis applicable to the current cost amounts included in net assets." (b) "For purposes of this Example, although the years for which information has been provided are nonspecific, the actual 1979-1983 average index numbers have been applied."

##### [255-10-55-20](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-20)

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The following table illustrates one format for the five-year comparison of selected financial data.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-CAC3154D-6F6C-4AA4-850C-1E30A62B0B7B-low.gif)
    
    Schedule 4 FIVE-YEAR COMPARISON OF SELECTED FINANCIAL DATA "In Thousands of Dollars, Except for Per Share Amounts" "Year Ended December 31," 19X6 19X5 19X4 19X3 19X2 Total revenue As reported " $275,500 " " $239,800 " " $219,100 " " $194,800 " " $193,100 " Adjusted for general inflation (a) " 275,500 " " 247,500 " " 240,000 " " 235,500 " " 265,000 " Income (loss) from operations As reported " 22,995 " " 11,097 " " 4,756 " " 9,977 " " 11,847 " Adjusted for specific price changes (a) " 4,839 " " 1,660 " " (2,102)" " (4,663)" " 1,261 " Purchasing power gain from holding net monetary liabilities (a) " 2,449 " " 7,027 " " 5,432 " " 1,247 " " 6,375 " Excess of increase in specific price of assets over increase in the general price level (a) " 20,458 " " 2,292 " " 3,853 " " 8,597 " " 3,777 " Foreign currency translation adjustment As reported (295) (276) (396) (138) 76 Adjusted for specific price changes (a) (624) (386) (454) (293) 127 Net assets at year-end As reported " 47,700 " " 28,000 " " 20,179 " " 18,819 " " 11,980 " Adjusted for specific price changes (b) " 92,027 " " 67,905 " " 60,409 " " 56,966 " " 55,705 " Per share information: Income (loss) from operations As reported $15.33 $7.40 $3.17 $6.65 $7.90 Adjusted for specific price changes (a) 3.23 1.11 (1.40) (3.11) 0.84 Cash dividends declared As reported 2 2 2 2 2 Adjusted for general inflation (a) 2.00 2.06 2.19 2.42 2.75 Market price at year-end As reported 36 38 41 23 25 Adjusted for general inflation (a) 35 39 43 27 32 Average Consumer Price Index (c) 298.4 289.1 272.4 246.8 217.4 (a) In average 19X6 dollars. (b) "Net assets adjusted for specific price changes include inventory and property, plant, and equipment at current cost and all other items as they are reported in the primary financial statements. No adjustment has been made for the lower tax basis applicable to the current cost amounts included in net assets." (c) "For purposes of this Example, although the years for which information has been provided are nonspecific, the actual 1979-1983 average index numbers have been applied."

##### [255-10-55-21](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-21)

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The following table illustrates one format for the five-year comparison of selected financial data.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-B326824C-F227-48DE-9195-7EE99B5D0C23-low.gif)
    
    Schedule 5 FIVE-YEAR COMPARISON OF SELECTED FINANCIAL DATA ADJUSTED FOR EFFECTS OF CHANGING PRICES (a) "In Thousands of Average 19X6 Dollars, Except for Per Share Amounts" "Year Ended December 31," 19X6 19X5 19X4 19X3 19X2 Net sales and other operating revenues " $275,500 " " $247,500 " " $240,000 " " $235,500 " " $265,000 " Income (loss) from continuing operations (b) " 4,839 " " 1,660 " " (2,102)" " (4,663)" " 1,261 " Gain from decline in purchasing power of net amounts owed (c) " 2,449 " " 7,027 " " 5,432 " " 1,247 " " 6,375 " "Increase in specific prices of inventory and property, plant, and equipment (d)" " 20,458 " " 2,292 " " 3,853 " " 8,597 " " 3,777 " Foreign currency translation adjustment (e) (624) (386) (454) (293) 127 Net assets at year-end (d) " 92,027 " " 67,905 " " 60,409 " " 56,966 " " 55,705 " Per share information: Income (loss) from continuing operations $3.23 $1.11 $(1.40) $(3.11) $0.84 Cash dividends declared 2.00 2.06 2.19 2.42 2.75 Market price at year-end 35 39 43 27 32 Average Consumer Price Index (f) 298.4 289.1 272.4 246.8 217.4 (a) "The condensed financial information in this schedule presents selected information that reflects effects of changes in the specific prices (current cost) of inventory and property, plant, and equipment expressed in units of constant purchasing power. The current cost amounts for inventory and cost of goods sold reflect actual manufacturing costs incurred in 19X6. The current cost amounts for major components of property, plant, and equipment were determined by applying specific price indexes to the applicable historical costs. For assets used in U.S. operations, Producer Price Indexes and Factory Mutual Building Indexes were used; for assets used in foreign operations, appropriate indexes for each country were used. The current cost information is expressed in average 19X6 dollars as measured by the Consumer Price Index for All Urban Consumers." (b) "Income from continuing operations reported in the primary financial statements was $22,995 for 19X6. Current cost income reported in the five-year summary was only $4,839 because depreciation expense on a current cost basis exceeded depreciation expense in the primary statements by $9,748 and current cost of goods sold was $8,408 greater than the amount reported in the primary statements." (c) The purchasing power gain on net amounts owed is an economic benefit to the entity that results from being able to repay those amounts with cheaper dollars. (d) "During 19X6, the specific prices (current cost) of inventory increased by $9,108 and of property, plant, and equipment by $16,738. The total increase exceeded the increase necessary to keep pace with general inflation by $20,458. Net assets include inventory and property, plant, and equipment at current cost and all other items as reported in the primary financial statements (restated into average-for-19X6 dollars). No adjustment has been made for the lower tax basis applicable to the current cost amounts included in net assets. At December 31, 19X6, the current cost of inventory was $65,700 and of property, plant, and equipment, net of accumulated depreciation, was $89,335 (both measured in December 31, 19X6 units of purchasing power). Those amounts are higher than the amounts in the primary statements of $63,000 for inventory and $45,750 for property, plant, and equipment, net of accumulated depreciation; therefore, it is reasonable to expect income from continuing operations on a current cost basis for 19X7 to remain significantly below that reported in the primary statements." (e) "Current cost amounts for foreign operations are measured in their functional currencies, translated into dollar equivalents using the average exchange rate for the year, and restated into constant units of purchasing power using the Consumer Price Index for All Urban Consumers. Essentially, the foreign currency translation adjustment is the effect of changes in exchange rates during the year on shareholders' equity. A negative (positive) translation adjustment indicates that, overall, the dollar increased (decreased) in value relative to the functional currencies used to measure the foreign operations of the entity." (f) "For purposes of this Example, although the years for which information has been provided are nonspecific, the actual 1979-1983 average index numbers have been applied."

##### [255-10-55-22](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-22)

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The following paragraphs 255-10-55-23 through 55-89 illustrate the methodology that might be used in calculating the disclosures in paragraph

[255-10-55-14 through 55-21](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-14)

.

##### [255-10-55-23](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-23)

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Computation of current cost information should be based on a detailed analysis of all transactions; however, the costs of preparing the information can be reduced with little loss of usefulness by simplifying the methods of calculation. Therefore, only cost of sales and depreciation expense need to be adjusted from the amounts shown in the primary income statement. Revenues, other expenses, and gains and losses need not be adjusted. Approximate methods of computation are acceptable for adjusting cost of sales and depreciation expense. The measurement of current cost is not illustrated.

##### [255-10-55-24](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-24)

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The objective in making these calculations is to obtain a reasonable degree of accuracy—complete precision is not required. Preparers are encouraged to devise short-cut methods of calculation, appropriate to their individual circumstances.

##### [255-10-55-25](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-25)

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If inventories and cost of sales are accounted for under the last-in, first-out (LIFO) method in the primary financial statements, the only adjustment normally required in computing income from continuing operations would be to eliminate the effect of changing prices on any prior-period LIFO layer liquidation.

##### [255-10-55-26](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-26)

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Seven basic steps to restate historical cost information into current cost-constant purchasing power information are illustrated in paragraphs

[255-10-55-23 through 55-89](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-23)

:

1.  a
    
    Analyze inventory (at the beginning and end of the year) and cost of goods sold to determine when the costs were incurred.
    
2.  b
    
    Restate inventory and cost of goods sold into current cost.
    
3.  c
    
    Analyze property, plant, and equipment to determine when the related assets were acquired.
    
4.  d
    
    Restate property, plant, and equipment and depreciation, depletion, and amortization expense into current cost.
    
5.  e
    
    Identify the amount of net monetary items (see paragraphs
    
    [255-10-55-1 through 55-13](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-1)
    
    ) at the beginning and end of the period and changes during the period.
    
6.  f
    
    Compute the purchasing power gain or loss on net monetary items.
    
7.  g
    
    Compute the change in current cost of inventory and property, plant, and equipment and the related effect of the increase in the general price level.

##### [255-10-55-27](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-27)

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The methodology illustrated in paragraphs

[255-10-55-23 through 55-89](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-23)

has been developed for the hypothetical entity, Parent Company. Parent Company has a wholly owned foreign subsidiary, Sub Company. Sub Company measures its operations in a functional currency other than the dollar. The changing prices disclosures for Parent Company and Sub Company are developed separately. Merging the amounts calculated for each entity results in a consolidated disclosure:

1.  a
    
    Paragraphs
    
    [255-10-55-37 through 55-50](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-37)
    
    illustrate the minimum recommended calculations for the domestic operations of Parent Company. A method of checking the arithmetic accuracy of the calculations is included in paragraph [255-10-55-51](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-51).
    
2.  b
    
    Paragraphs
    
    [255-10-55-61 through 55-74](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-61)
    
    illustrate the [translate-restate](https://asc.understandingaccounting.org/glossary/t/#translate-restate "An approach to converting current cost-nominal functional currency data of a foreign operation into units of constant purchasing power expressed in dollars. Using this approach, the current cost-nominal functional currency data are first translated into dollars and then restated into units of constant purchasing power using the Consumer Price Index for All Urban Consumers.") method for Sub Company, a foreign subsidiary that does not use the dollar as a functional currency. A method of checking the arithmetic accuracy of the calculations is included in paragraph [255-10-55-71](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-71).
    
3.  c
    
    The results of the calculations described in (a) and (b) are summarized in paragraph [255-10-55-75](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-75) and are reflected in the illustrative disclosures in paragraphs
    
    [255-10-55-14 through 55-21](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-14)
    
    .

##### [255-10-55-28](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-28)

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Paragraphs

[255-10-55-76 through 55-89](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-76)

illustrate the [restate-translate](https://asc.understandingaccounting.org/glossary/r/#restate-translate "An approach to converting current cost-nominal functional currency data of a foreign operation into units of constant purchasing power expressed in dollars. Using this approach, the current cost-nominal functional currency data are restated into units of constant purchasing power using a general price index for the foreign currency. After restatement into units of constant functional currency purchasing power, the current cost data are translated into dollars. This approach often necessitates a parity adjustment.") method for Sub Company. A method of checking the arithmetic accuracy of the calculations is included in paragraphs

[255-10-55-81 through 55-82](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-81)

.

##### [255-10-55-29](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-29)

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Throughout this Example, $ indicates nominal dollars, C$ indicates average 19X6 constant dollars, FC indicates nominal functional currency, C$E indicates dollar equivalents of FC amounts using the translate-restate method, CFC indicates average 19X6 constant functional currency, and CFC$ indicates the translated dollar equivalents of CFC amounts using the restate-translate method.

##### [255-10-55-30](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-30)

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Historical cost-nominal financial statements are as follows.

##### [255-10-55-31](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-31)

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Record version: sha256:b75f996efc13e37e2bbf0107296d5c4f55689124ea838743d683537201945434

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

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The following table illustrates Parent Company's balance sheet.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-AEAC46E5-5FC3-4F4E-BE77-2BB2B91C4713-low.gif)
    
    Parent Company Balance Sheet (Unconsolidated) "As of December 31, 19X6 and 19X5 " (000s) 19X6 19X5 19X6 19X5 Current assets: Current liabilities: Cash " $1,000 " " $2,000 " Accounts payable and accrued expenses " $47,000 " " $32,000 " Accounts receivable " 36,000 " " 16,500 " Income taxes payable " 6,000 " " 6,000 " "Inventories, at FIFO cost" " 63,000 " " 56,000 " Current portion of long-term debt " 5,000 " " 5,000 " Total current assets " 100,000 " " 74,500 " Total current liabilities " 58,000 " " 43,000 " "Property, plant, and equipment, at cost" " 100,000 " " 85,000 " Deferred income taxes " 6,000 " " 5,000 " Less accumulated depreciation " 56,000 " " 46,000 " Long-term debt " 34,000 " " 39,000 " " 44,000 " " 39,000 " Total liabilities " 98,000 " " 87,000 " Capital stock (b) " 10,000 " " 10,000 " Investment in Sub Company(a) " 1,500 " " 1,500 " Retained earnings " 37,500 " " 18,000 " " $145,500 " " $115,000 " " $145,500 " " $115,000 " (a) Investments in Sub Company is recorded at cost and is eliminated in consolidation. Parent Company does not issue separate unconsolidated statements. (b) "1,500,000 shares outstanding."

##### [255-10-55-32](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-32)

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Record version: sha256:1c534cd22390219d9d7160cdcc6238fc8b1af28a71a35d41a12231dc2b012d45

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The following table illustrates Parent Company's statement of earnings and retained earnings.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-EAC7FE56-EEB9-48D5-B2A1-D5DD5EDD0148-low.gif)
    
    Parent Company (Unconsolidated) Statement of Earnings and Retained Earnings "For the Year Ended December 31, 19X6" (000s) Sales " $270,000 " "Cost of goods sold, exclusive of depreciation" " 197,000 " "Selling, general, and administrative expenses" " 10,835 " Depreciation " 10,000 " Interest " 7,165 " " 225,000 " Earnings before taxes " 45,000 " Income taxes " 22,500 " Net income " 22,500 " Retained earnings at beginning of year " 18,000 " " 40,500 " Dividends " 3,000 " Retained earnings at end of year " $37,500 " Net income per share $15

##### [255-10-55-33](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-33)

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Record version: sha256:824e57dfd26c54f2fb21698796673569878d4ab1a564b126dde0ec7a3549a3da

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Inventory and production:

1.  a
    
    Inventory is accounted for on a first-in, first-out (FIFO) basis and turns over four times per year. There is no significant amount of work in progress or raw materials.
    
2.  b
    
    At December 31, 19X6, and 19X5, inventory consisted of 900,000 units and 1,000,000 units respectively—representing production of the immediately preceding quarter. Management has measured the current cost of inventory at $73 per unit at December 31, 19X6 ($65,700,000), and $58 per unit at December 31, 19X5 ($58,000,000).
    
3.  c
    
    Costs were incurred and goods produced as follows.
    
    -   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-AB6C9771-1DFA-4C80-BA82-8C9BAC52C0CA-low.gif)
        
        (000s) 19X5 19X6 4th 1st 2nd 3rd 4th Total Historical costs " $56,000 " " $39,560 " " $59,400 " " $42,040 " " $63,000 " " $204,000 " Units produced " 1,000 " 618 900 618 900 " 3,036 " Units sold " 1,000 " 618 900 618 " 3,136 "
        
4.  d
    
    At December 31, 19X6, the selling price per unit was $85.
    
5.  e
    
    There were no write-downs or disposals of inventory.

##### [255-10-55-34](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-34)

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Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

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Property, plant, and equipment:

1.  a
    
    Details of fixed assets at December 31, 19X6, are as follows.
    
    -   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-D907EA5F-B18E-486C-9380-196CA04E8765-low.gif)
        
        (000s) Date Acquired Percent Depreciated Historical Cost Accumulated Depreciation 19W9 80 " $50,000 " " $40,000 " 19X0 70 " 5,000 " " 3,500 " 19X1 60 " 5,000 " " 3,000 " 19X2 50 " 5,000 " " 2,500 " 19X3 40 " 5,000 " " 2,000 " 19X4 30 " 5,000 " " 1,500 " 19X5 20 " 10,000 " " 2,000 " 19X6 10 " 15,000 " " 1,500 " " $100,000 " " $56,000 "
        
2.  b
    
    Depreciation is calculated at 10 percent per annum, straight line. A full year's depreciation is charged in the year of acquisition.
    
3.  c
    
    There were no disposals.
    
4.  d
    
    Management has measured the current cost of property, plant, and equipment at December 31, 19X6, and 19X5, as follows.
    
    -   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-D0AFC5E5-1741-496A-93E1-F899B904BFD5-low.gif)
        
        (000s) "December 31, 19X6" "December 31, 19X5" Date Acquired Current Cost Accumulated Depreciation Current Cost Accumulated Depreciation 19W9 " $120,000 " " $96,000 " " $110,000 " " $77,000 " 19X0 " 10,000 " " 7,000 " " 6,000 " " 3,600 " 19X1 " 15,000 " " 9,000 " " 7,000 " " 3,500 " 19X2 " 18,000 " " 9,000 " " 12,000 " " 4,800 " 19X3 " 12,000 " " 4,800 " " 10,000 " " 3,000 " 19X4 " 17,000 " " 5,100 " " 15,000 " " 3,000 " 19X5 " 12,000 " " 2,400 " " 10,000 " " 1,000 " 19X6 " 16,000 " " 1,600 " - - " 220,000 " " $134,900 " " 170,000 " " $95,900 " Accumulated depreciation " 134,900 " " 95,900 " Net current cost " $85,100 " " $74,100 "
        
5.  e
    
    The [recoverable amount](https://asc.understandingaccounting.org/glossary/r/#recoverable-amount "Current worth of the net amount of cash expected to be recoverable from the use or sale of an asset.") has been determined by management to be in excess of current cost, net of accumulated depreciation.

##### [255-10-55-35](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-35)

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Record version: sha256:4562d39563fa07e529b78d6ef1e8aaf0436fdbe00fa5ffac3d29293f0005cb65

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Dividends were paid at the rate of $750,000 per quarter.

##### [255-10-55-36](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-36)

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Record version: sha256:dc9c8b2b9525773b4e2f6de22341464e900bc892113d9dbd1751f710f4903b01

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Consumer Price Index for All Urban Consumers (from the Survey of Current Business, U.S. Department of Commerce, Bureau of Economic Analysis, January 19X7) is as follows.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-FAEA122B-47A3-4775-9E64-75BF8BF06DC1-low.gif)
    
    December 19X5 292.4 Average 19X6 298.4 December 19X6 303.5

##### [255-10-55-37](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-37)

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Record version: sha256:82ffd47abb0ec10823a9133c462a6f69c492d39bfdf75cd744d31641e7a960e8

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The objective is to express the supplementary information in average 19X6 dollars. As indicated in paragraph [255-10-50-34](https://asc.understandingaccounting.org/asc/255/10/#255-10-50-34), nominal dollar measurements may be used for all elements of net assets other than inventory and property, plant, and equipment. As indicated in paragraph [255-10-50-39](https://asc.understandingaccounting.org/asc/255/10/#255-10-50-39), nominal dollar measurements may be used for all elements of income from continuing operations other than cost of sales and depreciation.

##### [255-10-55-38](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-38)

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Record version: sha256:1591966da2a022b2d8120e2875b635554f34cb6a4f9aa63a7f89e014527eafb4

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Step 1: Analysis of Inventory and Cost of Goods Sold. Inventory is assumed to turn over four times per year. Therefore, inventory with a historical cost of $63,000,000 at December 31, 19X6, is assumed to have been acquired during the fourth quarter of 19X6, and inventory with a historical cost of $56,000,000 at December 31, 19X5, is assumed to have been acquired in the fourth quarter of 19X5.

##### [255-10-55-39](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-39)

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Record version: sha256:9eb27ed5fefbcb5f3b6a905ac92f2aea9ddd3a36708282d9982d9a3f80a16e16

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Step 2: Current Cost of Inventory and Cost of Goods Sold. Cost of goods sold, current cost is as follows.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-6968189B-BC3F-4F73-9BA1-87399ABE1F5E-low.gif)
    
    Current cost at the beginning of year $58 /unit Current cost at the end of year 73 /unit $131 /unit Average current cost ($131 ÷ 2) $65.50 /unit Units sold during the year (000s) \[paragraph 255-10-55-33(c)\] "× 3,136" Average current cost of goods sold (000s) " $205,408 "

##### [255-10-55-40](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-40)

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Record version: sha256:bb744114472d1f8fb6aee9ad054483cbcb3a6a1e3d3b69e3b1a8bde16d586bfb

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The current cost amounts should be compared with the recoverable amount. This is illustrated below.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-D452F70D-604E-44A6-A32F-400E1E490E21-low.gif)
    
    Market price per unit at end of year $85 Current cost per unit of inventory on hand at end of year 73 Excess—no write-down required $12

##### [255-10-55-41](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-41)

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Record version: sha256:9026d317b413cff23d0fcce033d4e266f8968ed40c303a221fac29e8c816758c

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Step 3: Analysis of Property, Plant, and Equipment and Depreciation. An analysis of property, plant, and equipment was given in paragraph [255-10-55-34](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-34).

##### [255-10-55-42](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-42)

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Record version: sha256:05dfdc2b8f26ba59738d4c6d5bf5d8496baca296b283bd53d0df113d61e764ba

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Step 4: Current Cost of Property, Plant, and Equipment and Depreciation. It will usually be appropriate to calculate current cost depreciation, depletion, and amortization expense by reference to average current cost of the related assets (current cost of assets at beginning of year + current cost of assets at end of year ÷ 2), as follows.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-A5A14CC9-294D-4AB6-A69B-63A9D658B639-low.gif)
    
    (000s) Current Cost Current cost—12/31/X5 \[paragraph 255-10-55-34(d)\] " $170,000 " Current cost—12/31/X6 \[paragraph 255-10-55-34(d)\] " 220,000 " " 390,000 " ÷ 2 Average current cost " $195,000 " "Current cost depreciation: 10%, straight line" " $19,500 "

##### [255-10-55-43](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-43)

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Record version: sha256:081c9b15d75701189bbd9fe7f073e4ca24b85019cad9a28191b3c8d44a68b32b

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In this Example, management has determined that the recoverable amount is greater than net current cost of property, plant, and equipment and there is no write-down.

##### [255-10-55-44](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-44)

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Step 5: Identification of Net Monetary Items. Net monetary items (see paragraphs

[255-10-55-30 through 55-32](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-30)

) are as follows.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-2AE49D2E-943B-4698-B443-64AA8C182DB1-low.gif)
    
    (000s) "Dec. 31, 19X6" "Dec. 31, 19X5" Cash " $1,000 " " $2,000 " Accounts receivable " 36,000 " " 16,500 " Accounts payable and accrued expenses " (47,000)" " (32,000)" Income taxes payable " (6,000)" " (6,000)" Current portion of long-term debt " (5,000)" " (5,000)" Deferred income taxes " (6,000)" " (5,000)" Long-term debt " (34,000)" " (39,000)" Net monetary liabilities " $(61,000)" " $(68,500)"

##### [255-10-55-45](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-45)

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Record version: sha256:0e9dc9c30a4ba800a887cceace272233ad3a3d21116e23ad977ed5d05169b47f

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Step 6: Computation of the Purchasing Power Gain or Loss on Net Monetary Items. The amount of net monetary items at the beginning of the year, changes in the net monetary items, and the amount at the end of the year are restated into average 19X6 dollars. The purchasing power gain or loss on net monetary items is then the balancing item as illustrated in the following table.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-FA7FBD70-20FF-4531-84A1-F8BB002C744F-low.gif)
    
    (000s) (000s) Nominal Dollars Conversion Factor Avg. 19X6 Dollars Balance—1/1/X6 " $68,500 " 298.4 (avg. 19X6) " C$ 69,906 " 292.4 (Dec.19X5) Decrease in net monetary liabilities during the year " (7,500)" (a) " (7,500)" Balance—12/31/X6 " $61,000 " 298.4 (avg. 19X6) " (59,975)" 303.5 (Dec.19X6) Purchasing power gain on net monetary items " C$ 2,431 " C$: Average 19X6 constant dollars (a) Assumed to be in average 19X6 dollars.

##### [255-10-55-46](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-46)

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Step 7: Computation of the Change in Current Cost of Inventory and Property, Plant, and Equipment and the Effect of General Price-Level Changes. The increase in current cost of inventories is as follows.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-5C4BB4C8-7AC8-4289-A5A3-D38838A7A010-low.gif)
    
    (000s) (000s) Current Cost/ Nominal Dollars Conversion Factor Current Cost/ Avg. 19X6 Dollars Balance—1/1/X6 \[paragraph 255-10-55-33(b)\] " $58,000 " 298.4 (avg. 19X6) " C$ 59,190 " 292.4 (Dec. 19X5) Production \[paragraph 255-10-55-33(c)\] " 204,000 " (a) " 204,000 " Cost of goods sold \[paragraph 255-10-55-39\] " (205,408)" (a) " (205,408)" Balance—12/31/X6 \[paragraph 255-10-55-33(b)\] " (65,700)" 298.4 (avg. 19X6) " (64,596)" 303.5 (Dec. 19X6) Increase in current cost of inventories " $9,108 " " C$ 6,814 " C$: Average 19X6 constant dollars (a) Assumed to be in average 19X6 dollars.

##### [255-10-55-47](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-47)

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Record version: sha256:41367ec13e43f2a15e65bc7f1262f85d832da9f2d8e035c1d912a95d1d5b7d90

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

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The inflation component of the increase in current cost amount is the difference between the nominal dollar and constant dollar measures. The following table uses the numbers from the preceding paragraph.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-B6D1234B-FF5D-444D-A87F-2BFB0B649CB3-low.gif)
    
    (000s) Increase in current cost (nominal dollars) " $9,108 " Increase in current cost (constant dollars) " C$ 6,814 " Inflation component " 2,294 " C$: Average 19X6 constant dollars

##### [255-10-55-48](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-48)

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Record version: sha256:871c339961311a138b9c8e033789bf76886a2e585f2a540cef59b0339f5753c6

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

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The increase in current cost of property, plant, and equipment is as follows.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-6BC3B184-2D6B-46C3-9FDE-49BC84F7EDC2-low.gif)
    
    (000s) (000s) Current Cost/ Nominal Dollars Conversion Factor Current Cost/ Average 19X6 Dollars Balance—1/1/X6 \[paragraph 255-10-55-34(d)\] " $74,100 " 298.4 (avg. 19X6) " C$ 75,621 " 292.4 (Dec. 19X5) Additions \[paragraph 255-10-55-34(a)\] " 15,000 " (a) " 15,000 " Depreciation \[paragraph 255-10-55-42\] " (19,500)" (a) " (19,500)" Balance—12/31/X6 \[paragraph 255-10-55-34(d)\] " (85,100)" 298.4 (avg. 19X6) " (83,670)" 303.5 (Dec. 19X6) "Increase in current cost of property, plant, and equipment" " $15,500 " " C$ 12,549 " C$: Average 19X6 constant dollars (a) Assumed to be in average 19X6 dollars.

##### [255-10-55-49](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-49)

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Record version: sha256:29f8fc357e9b4f5b19684b3624b9ccbcd36cf74a9374e7e3ba2e0a078abb8508

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Effective as of: not established by retrieval timestamps.


The inflation component of the increase in current cost amount is the difference between the nominal dollar and constant dollar measures. The following table uses the numbers from the preceding paragraph.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-AE997A0C-2028-45A9-9057-896903209E37-low.gif)
    
    (000s) Increase in current cost (nominal dollars) " $15,500 " Increase in current cost (constant dollars) " C$ 12,549 " Inflation component " 2,951 " C$: Average 19X6 constant dollars

##### [255-10-55-50](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-50)

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Effective as of: not established by retrieval timestamps.


The following table summarizes paragraphs [255-10-55-47](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-47) and the preceding paragraph.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-3D711F35-E669-49CB-839F-8F348C0C50B5-low.gif)
    
    (000s) Increase in Current Cost Inflation Component Increase Net of Inflation Inventory " $9,108 " " 2,294 " " C$ 6,814 " "Property, plant, and equipment" " 15,500 " " 2,951 " " 12,549 " Total " $24,608 " " 5,245 " " C$ 19,363 " C$: Average 19X6 constant dollars

##### [255-10-55-51](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-51)

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Effective as of: not established by retrieval timestamps.


A reconciliation of shareholders' equity (net assets) on a current cost - constant purchasing power basis acts as a check on the arithmetic accuracy of the calculations. Changes in shareholders' equity during 19X6 in average 19X6 dollars appear in the following table.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-1AFE89EA-A903-4F6B-9A4D-76A309F03D97-low.gif)
    
    (000s) " Source Paragraph (within 255-10-55)" Current Cost/ Average 19X6 Dollars "Equity at January 1, 19X6" Inventory 46 " C$ 59,190 " "Property, plant, and equipment—net" 48 " 75,621 " Net monetary items 45 " (69,906)" " 64,905 " Income from continuing operations 75 " 4,592 " Dividends 35 " (3,000)" Gain from decline in purchasing power of net monetary liabilities 45 " 2,431 " "Excess of increase in specific prices over increase in the general price level" Previous par. " 19,363 " " C$ 88,291 " "Equity at December 31, 19X6" Inventory 46 " C$ 64,596 " "Property, plant, and equipment—net" 48 " 83,670 " Net monetary items 45 " (59,975)" " C$ 88,291 " C$: Average 19X6 constant dollars

##### [255-10-55-52](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-52)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

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Effective as of: not established by retrieval timestamps.


To facilitate the illustration of consolidated amounts in paragraph [255-10-55-75](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-75), investment in Sub Company has been excluded from net assets of Parent Company in the preceding paragraph.

##### [255-10-55-53](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-53)

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Effective as of: not established by retrieval timestamps.


The functional currency financial statements of Sub Company appear in the following tables.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-2B31998D-5E0B-4922-AB6B-8D47F2222191-low.gif)
    
    Sub Company Historical Cost/Nominal FC Balance Sheets (000s) "December 31," 19X6 19X5 Cash " FC 2,550 " " FC 1,250 " Equipment " 2,500 " " 2,500 " Accumulated depreciation 750 500 Net equipment " 1,750 " " 2,000 " Total assets " FC 4,300 " " FC 3,250 " Accounts payable FC 600 FC 500 Long-term debt " 2,000 " " 1,500 " Total liabilities " 2,600 " " 2,000 " Capital stock 500 500 Retained earnings " 1,200 " 750 Total equity " 1,700 " " 1,250 " Total liabilities and equity " FC 4,300 " " FC 3,250 " FC: Nominal functional currency
    
-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-F9208358-A771-47FE-90FA-9940FFF0BC6D-low.gif)
    
    Sub Company Historical Cost/Nominal FC Statement of Income and Retained Earnings "For the Year Ended December 31, 19X6" (000s) Revenue " FC 5,000 " General and administrative expenses " 3,500 " Depreciation 250 Interest 350 " 4,100 " Income before taxes 900 Income taxes 450 Net income 450 Retained earnings—beginning of year 750 Retained earnings—end of year " FC 1,200 " FC: Nominal functional currency

##### [255-10-55-54](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-54)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

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Effective as of: not established by retrieval timestamps.


For simplicity, Sub Company is assumed to have a fixed asset but no inventory. The mechanics of restating inventory and cost of goods sold on a current cost basis are essentially the same as those illustrated for property, plant, and equipment.

##### [255-10-55-55](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-55)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

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Effective as of: not established by retrieval timestamps.


The fixed asset was acquired on December 31, 19X4. It is depreciated on a straight-line basis over 10 years and is expected to have no salvage value. There were no acquisitions or disposals of assets during the year.

##### [255-10-55-56](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-56)

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Effective as of: not established by retrieval timestamps.


Exchange rates between the functional currency and the dollar are as follows.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-CF4947DF-81F2-4684-A765-D0278BD5FE63-low.gif)
    
    "December 31, 19X5" FC 1 = $1.20 Average 19X6 FC 1 = $1.10 "December 31, 19X6" FC 1 = $1.00 FC: Nominal functional currency

##### [255-10-55-57](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-57)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

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Effective as of: not established by retrieval timestamps.


Management has measured the current cost of equipment at December 31, 19X6, and 19X5, as follows.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-86A14246-06A9-4CF2-8A47-05CECFCFAA25-low.gif)
    
    (000s) 19X6 19X5 Current cost " FC 5,500 " " FC 4,000 " Accumulated depreciation " (1,650)" (800) Net current cost " FC 3,850 " " FC 3,200 " FC: Nominal functional currency

##### [255-10-55-58](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-58)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

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Effective as of: not established by retrieval timestamps.


The recoverable amount has been determined to be in excess of net current cost at both dates.

##### [255-10-55-59](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-59)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

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Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Current cost equity in nominal FC at the beginning and end of the year may be computed by adding net monetary items and net property, plant, and equipment at current cost. To determine current cost equity in nominal dollars, those FC amounts are translated at the appropriate exchange rate.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-23490AE8-E807-45CB-8FA6-96CBD4F4311A-low.gif)
    
    December 31 19X6 19X5 (000s) (000s) (000s) (000s) FC Exchange Rate $ FC Exchange Rate $ Monetary items (paragraph 255-10-55-53) Cash " FC 2,550 " $1 " $2,550 " " FC 1,250 " $1.20 " $1,500 " Current liabilities (600) $1 (600) $(500) $1.20 (600) Long-term debt " (2,000)" $1 " (2,000)" " $(1,500)" $1.20 " (1,800)" Net monetary liabilities FC (50) $(50) FC (750) $(900) Equipment—net (paragraph 255-10-55-57) " FC 3,850 " $1 " $3,850 " " FC 3,200 " $1.20 " $3,840 " Equity at current cost " FC 3,800 " " $3,800 " " FC 2,450 " " $2,940 " FC: Nominal functional currency

##### [255-10-55-60](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-60)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

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Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The U.S. and local general price level indexes are as follows.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-3DD5984D-C980-4B32-A766-5079537A5182-low.gif)
    
    Local U.S. December 19X5 144 292.4 Average 19X6 158 298.4 December 19X6 173 303.5

##### [255-10-55-61](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-61)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

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Effective as of: not established by retrieval timestamps.


To apply the translate-restate method, amounts measured in nominal FC are first translated into their dollar equivalents. Changes in those dollar equivalent amounts are then restated to reflect the effects of U.S. inflation.

##### [255-10-55-62](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-62)

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Record version: sha256:18c73d640828fcaea406d833bac78c2a7ed93c98e868a9ff9859d3a3a8954edd

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The first step is to determine current cost depreciation for the year as follows.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-A410E70A-C9E2-4308-8AD0-B0140FA2476E-low.gif)
    
    (000s) Current cost—beginning of year (paragraph 255-10-55-57) " FC 4,000 " Current cost—end of year (paragraph 255-10-55-57) " 5,500 " " 9,500 " ÷ 2 "Average current cost, gross" " FC 4,750 " FC: Nominal functional currency

##### [255-10-55-63](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-63)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

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Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Current cost depreciation expense for the year is FC 475,000 (FC 4,750,000 × 10%). Computation of current cost depreciation and income from continuing operations does not involve use of a general price level index if measurements are made in average-for-the-year currency units. Accordingly, reported current cost depreciation under the translate-restate method is C$E 523,000 (FC 475,000 x $1.10).

##### [255-10-55-64](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-64)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

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Effective as of: not established by retrieval timestamps.


Income from continuing operations on a current cost basis is computed by simply replacing historical cost depreciation in [income from continuing operations](https://asc.understandingaccounting.org/glossary/i/#income-from-continuing-operations "Income after applicable income taxes but excluding the results of discontinued operations, the cumulative effect of accounting changes, translation adjustments, purchasing power gains and losses on monetary items, and increases and decreases in the current cost or lower recoverable amount of nonmonetary assets and liabilities.") in the primary financial statements with the current cost amount. Accordingly, current cost income from continuing operations is as follows.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-E3E24D76-7E11-467A-B9F4-5F3EC533FF87-low.gif)
    
    Net income + historical cost depreciation - current cost depreciation = " FC 450,000 (paragraph 255-10-55-53) + FC 250,000 (paragraph 255-10-55-53) - FC 475,000 (paragraph 255-10-55-62)" = "FC 225,000" FC: Nominal functional currency

##### [255-10-55-65](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-65)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

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Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Reported current cost income from continuing operations under the translate-restate method is C$E 247,000 (FC 225,000 × $1.10). Current cost income has been rounded down from $247,500 to $247,000. This is necessary because current cost depreciation was rounded up to $523,000 from $522,500 and current cost income is a remainder of this number.

##### [255-10-55-66](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-66)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

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Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The second step is to compute the change in the current cost of equipment and the effect of the increase in the general price level. To measure the increase in current cost of equipment in nominal FC dollar equivalents, the effect of the exchange rate change must be excluded. One way to accomplish this is to translate the December 31, 19X5, and 19X6, FC current cost amounts to dollar equivalents at the average exchange rate and then restate those dollar amounts to average 19X6 constant dollar equivalents.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-90E65DFF-3DD1-4695-BE4B-8F813A09EBBD-low.gif)
    
    (000s) (000s) (000s) Current Cost/FC Exchange Rate Current Cost/$ Conversion Factor Current Cost/C$E "Current cost, net—12/31/X5 (paragraph 255-10-55-57)" " FC 3,200 " $1.10 " $3,520 " 298.4 (avg.19X6) " C$E 3,592 " 292.4 (Dec. 19X5) Depreciation (paragraph 255-10-55-62) (475) $1.10 (523) (a) (523) "Current cost, net—12/31/X6 (paragraph 255-10-55-57)" " (3,850)" $1.10 " (4,235)" 298.4 (avg. 19X6) " (4,164)" 303.5 (Dec. 19X6) Increase in current cost " FC 1,125 " " $1,238 " " C$E 1,095 " C$E: Dollar equivalents of nominal functional currency amounts using the translate-restate method FC: Nominal functional currency (a) Assumed to be in average 19X6 C$E.

##### [255-10-55-67](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-67)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

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Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The inflation component of the increase in current cost amount is the difference between the nominal dollar and the constant dollar equivalent amounts, as follows.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-C255AD41-D8F4-4249-B183-07CEF7A26D28-low.gif)
    
    (000s) Increase in current cost (nominal dollars) " $1,238 " Increase in current cost (constant dollars) " C$E 1,095 " Inflation component $143 C$E: Dollar equivalents of nominal functional currency amounts using the translate-restate method

##### [255-10-55-68](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-68)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

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Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The third step is to compute the purchasing power gain or loss on net monetary items. Under the translate-restate method, the translated beginning and ending net [monetary liabilities](https://asc.understandingaccounting.org/glossary/m/#monetary-liability "An obligation to pay a sum of money the amount of which is fixed or determinable without reference to future prices of specific goods and services.") are restated to average 19X6 dollars. The U.S. purchasing power gain is then the balancing amount.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-CA679C0B-748F-421D-9363-AE75FE9891A7-low.gif)
    
    (000s ) (000s) FC Exchange Rate $ Net monetary liabilities—12/31/X5 (par. 255-10-55-59) FC 750 $1.20 $900 Net monetary liabilities—12/31/X6 (par. 255-10-55-59) 50 $1.00 50 Decrease during the year FC 700 $850 FC: Nominal functional currency
    
-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-940F9025-48F8-47E7-846C-54258D790375-low.gif)
    
    (000s) (000s) $ Conversion Factor C$E Net monetary liabilities—12/31/X5 $900 298.4 (avg. 19X6) C$E 918 292.4 (Dec. 19X5) Decrease during the year (850) (a) (850) Net monetary liabilities— 12/31/X6 $50 298.4 (avg. 19X6) (49) Purchasing power gain 303.5 (Dec. 19X6) C$E 19 C$E: Dollar equivalents of nominal functional currency amounts using the translate-restate method (a) Assumed to be in average 19X6 C$E.

##### [255-10-55-69](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-69)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

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Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


In some circumstances, this procedure will include a part of the effect of exchange rate changes on net monetary items in the purchasing power gain or loss. A more precise computation that would completely exclude the effect of exchange rate changes would be to compute a separate [purchasing power gain or loss](https://asc.understandingaccounting.org/glossary/p/#purchasing-power-gain-or-loss "The net gain or loss determined by restating in units of constant purchasing power the opening and closing balances of, and transactions in, monetary assets and liabilities.") for each functional currency operation in a manner similar to that illustrated in paragraphs

[255-10-55-66 through 55-67](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-66)

for the increase in specific prices. For Sub Company, that alternative method produces a purchasing power gain of C$E 18.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-5553C8AA-9073-4E95-8143-5249AEA28F24-low.gif)
    
    (000s) FC Average Exchange Rate (000s) $ Conversion Factor (000s) C$E Net monetary liabilities—12/31/X5 (paragraph 255-10-55-59) FC750 $1.10 825 298.4 (avg.19X6) C$E842 292.4 (Dec. 19X5) Decrease during the year (700) $1.10 (770) (a) (770) Net monetary liabilities—12/31/X6 (paragraph 255-10-55-59) FC 50 $1.10 55 298.4 (avg. 19X6) (54) 303.5 (Dec. 19X6) Purchasing power gain C$E 18 C$E: Dollar equivalents of nominal functional currency amounts using the translate-restate method FC: Nominal functional currency (a) Assumed to be in average 19X6 C$E.

##### [255-10-55-70](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-70)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

Record version: sha256:428362478241d5f876eee2f22e51ab1335f52828315e2e61cc6016e06c88886e

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The first procedure illustrated is less costly because it can be applied on a consolidated basis, and it generally provides a reasonable approximation. Accordingly, that method is acceptable. For this exercise, the more precise computation is used.

##### [255-10-55-71](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-71)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

Record version: sha256:55f8e014087e4a60064943930b07c76ee868f6dc8f155b34a258045590d9b530

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A reconciliation of equity serves as a check of the calculations and is a convenient way to compute the [translation adjustment](https://asc.understandingaccounting.org/glossary/t/#translation-adjustments "Translation adjustments result from the process of translating financial statements from the entity's functional currency into the reporting currency.").

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-92923652-7763-4583-893C-87A30770647B-low.gif)
    
    (000s) "Equity at 12/31/X5 in average 19X6 C$ - $2,940 (paragraph 255-10-55-59) × 298.4 ÷ 292.4" " C$ 3,000 " Income from continuing operations (paragraph 255-10-55-64 through 65) C$E 247 Purchasing power gain (paragraph 255-10-55-69) 18 Excess of increase in specific prices over increase in general price level (paragraph 255-10-55-66) " 1,095 " Translation adjustment (following paragraph) (624) Increase in equity in terms of U.S. purchasing power 736 " C$ 3,736 " "Equity at 12/31/X6 in average 19X6 C$ - $3,800 (paragraph 255-10-55-59) × 298.4 ÷ 303.5" " C$ 3,736 " C$: Average 19X6 constant dollars C$E: Dollar equivalents of nominal functional currency amounts using the translate-restate method

##### [255-10-55-72](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-72)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

Record version: sha256:7e0d2a274e7bc268b737865c1b4ac5af4bc7e89dd8c09499ab0e469b2ed93210

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The preceding paragraph shows that the translation adjustment is the amount needed to balance the reconciliation of equity. The translation adjustment may be checked by computing the effect of changes in the exchange rate on beginning-of-year equity and on the increase or decrease in equity during the year. To check the translation adjustment determined under the translate-restate method: translate the beginning- and end-of-year equity on a C$ basis into FC amounts and use those FC amounts to compute the effect on equity of changes in the exchange rate.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-62FA1792-1100-45B1-A3ED-E04B13B55613-low.gif)
    
    (000s) (000s) C$ Exchange Rate FC (000s) (000s) " C$" Exchange Rate " FC" Equity at 12/31/X5 in average 19X6 C$ (preceding paragraph) " C$ 3,000 " $0.83 (a) " FC 2,499 " Equity at 12/31/X6 in average 19X6 C$ (preceding paragraph) " 3,736 " $1.00 " 3,736 " Increase in equity C$ 736 " FC 1,237 " C$: Average 19X6 constant dollars FC: Nominal functional currency (a) FC1 - $1.20 = $0.833
    
-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-6DC2E5A9-38ED-49A8-B1A8-1A9CD0A000E1-low.gif)
    
    (000s) Beginning-of-year equity FC 2499 Exchange rate change during 19X6 ($1.20 - $1.00) × (.20) $(500) Increase in equity FC 1237 Difference between ending exchange rate and average rate for 19X6 ($1.10 - $1.00) × (.10) $(124) Translation adjustment $(624) FC: Nominal functional currency

##### [255-10-55-73](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-73)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

Record version: sha256:8e9cd64968e27f9093d93c075cf0efb511b88a8d468b87c22fa33226a86212ab

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


If the short-cut method for determining the purchasing power gain or loss described in paragraphs

[255-10-55-68 through 55-70](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-68)

were followed, the translation adjustment would be $(625).

##### [255-10-55-74](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-74)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

Record version: sha256:0fc5b8d3f1ca79c647e04725cf9c6f75894f70b295bdce38f7c0c6790112521c

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Parent Company prepares its changing prices disclosures on a consolidated basis and complies with the minimum requirements in determining current cost income from continuing operations (see paragraphs

[255-10-50-39 through 50-40](https://asc.understandingaccounting.org/asc/255/10/#255-10-50-39)

). Accordingly, revenue, general and administrative expenses, interest, and income taxes (see paragraph [255-10-50-41](https://asc.understandingaccounting.org/asc/255/10/#255-10-50-41)) are shown at amounts reported in the historical cost financial statements. For Sub Company, those amounts are translated into dollars as follows.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-02D5BB54-C155-4A74-B1A0-56CE4086867B-low.gif)
    
    (000s) (000s) "FC Amount (Paragraph 255-10-55-53)" Exchange Rate U.S. Dollars Revenue "FC 5,000" 1.10 " $5,500 " General and administrative expenses "FC 3,500" 1.10 " $3,850 " Interest FC 350 1.10 $385 Income taxes FC 450 1.10 $495 FC: Nominal functional currency

##### [255-10-55-75](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-75)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

Record version: sha256:2d3e47f5de57289efc594ad5ff82dfefe146da1e7de5f6d558a0b77e57c0f052

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The "Total" column of the following schedule provides the figures in Schedule 2 of paragraph [255-10-55-18](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-18).

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-05BCEA04-A94D-45A0-94F0-786DA93C9ABD-low.gif)
    
    (000s) (000s) "Source Paragraph (within 255-10-55)" Parent Company "Source Paragraph (within 255-10-55)" Sub Company Total Average 19X6 Units of Purchasing Power Net sales and other revenues 31 " $270,000 " Preceding par. " $5,500 " " $275,500 " Cost of goods sold 39 " 205,408 " " 205,408 " Depreciation expense 42 " 19,500 " 62 through 63 523 " 20,023 " "Selling, general, and administrative expenses" 31 " 10,835 " Preceding par. " 3,850 " " 14,685 " Interest expense 31 " 7,165 " Preceding par. 385 " 7,550 " Provision for taxes 31 " 22,500 " Preceding par. 495 " 22,995 " " 265,408 " " 5,253 " " 270,661 " Income (loss) from operations " $4,592 " $247 " $4,839 " Purchasing power gain (loss) 45 " $2,431 " $18 " $2,449 " Increase in specific prices Inventory 50 " $9,108 " 69 " $9,108 " "Property, plant, and equipment" 50 " 15,500 " 66 through 67 " $1,238 " " 16,738 " " 24,608 " " 1,238 " " 25,846 " Effect of increase in general price level 50 " 5,245 " 66 through 67 143 " $5,388 " Increase in specific prices—net of inflation 50 " $19,363 " 66 through 67 " $ 1 ,095 " " $20,458 " Translation adjustment 72 $(624) $(624) Net assets 51 " $88,291 " 71 " $3,736 " " $92,027 " "December 31, 19X6 Units of Purchasing Power" Inventory 33 " $65,700 " " $65,700 " "Property, plant, and equipment—net of accumulated depreciation" 34(d) " $85,100 " 66 through 67 " $4,235 " " $89,335 "

##### [255-10-55-76](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-76)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

Record version: sha256:5a2cf7f60a3aeb4bbdf3a0761ee33c0d136717040107bb6e7d1d4033208039d9

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


To apply the restate-translate method, the steps illustrated in paragraphs

[255-10-55-61 through 55-73](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-61)

are followed except that all restatements to reflect the effects of general inflation are made using the local general price level index before translation to dollar equivalents.

##### [255-10-55-77](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-77)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

Record version: sha256:2d77b2ca877df7030c7dc14e1ca1e833984d2692e002ca6bd56c109470e20d0c

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Current cost depreciation and income from continuing operations are FC 475,000 and FC 225,000, respectively, as determined in paragraphs

[255-10-55-62 through 55-65](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-62)

.

##### [255-10-55-78](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-78)

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Record version: sha256:b71d1e517a54acd95e429418b628ee2d22c8080b4842dbc8168b337b799475a5

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


To apply the restate-translate method, the FC amount of net monetary items at the beginning of the year, changes in the net monetary items, and the amount at the end of the year are restated into average 19X6 CFC. The purchasing power gain or loss on net monetary items is then the balancing item.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-11CF5AFE-BC83-4B33-B728-83C1587F027B-low.gif)
    
    (000s) (000s) FC Conversion Factor CFC Net monetary liabilities—12/31/X5 (paragraph 255-10-55-59) FC 750 158 (avg. 19X6) CFC 823 144 (Dec. 19X5) Decrease during the year (700) (a) (700) Net monetary liabilities—12/31/X6 (paragraph 255-10-55-59) FC 50 158 (avg. 19X6) (46) 173 (Dec. 19X6) Purchasing power gain CFC 77 CFC: Average 19X6 constant functional currency C$E: Dollar equivalents of nominal functional currency amounts using the translate-restate method FC: Nominal functional currency (a) Assumed to be in average 19X6 C$E.

##### [255-10-55-79](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-79)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

Record version: sha256:613b3f727a68f996cb031c9dbf5c80e48c9e50b7642d278c4d74a0baa7d10b44

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Under the restate-translate method, the local index is used to restate the beginning and ending current cost FC amounts into average 19X6 CFC.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-109EBCBA-794C-4A56-9722-A0C530FA8390-low.gif)
    
    (000s) (000s) Current Cost/FC Conversion Factor Current Cost/CFC Current cost net—12/31/X5 (paragraph 255-10-55-57) " FC 3,200 " 158 (avg. 19X6) " CFC 3,511 " 144 (Dec. 19X5) Depreciation (paragraph 255-10-55-77) (475) (a) (475) "Current cost, net—12/31/X6 (paragraph 255-10-55-57)" " (3,850)" 158 (avg. 19X6) " (3,516)" 173 (Dec. 19X6) Increase in current cost " FC 1,125 " CFC 480 FC: Nominal functional currency CFC: Average 19X6 constant functional currency (a) Assumed to be in average 19X6 CFC.

##### [255-10-55-80](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-80)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

Record version: sha256:186611b721f3e05cc53e0ef632ac8a9c26ea837d623f6607a65829003a909af1

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The inflation component of the increase in current cost amount is the difference between the nominal functional currency and constant functional currency amounts.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-7907DCCC-ABBA-4820-9AD9-4EFC2724731E-low.gif)
    
    (000s) Increase in current cost (FC) " FC 1,125 " Increase in current cost (CFC) CFC 480 Inflation component 645 CFC: Average 19X6 constant functional currency FC: Nominal functional currency

##### [255-10-55-81](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-81)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

Record version: sha256:d9d3774479f05966ea4e45d05837d8c201b1a62c7bae909260c05c78b9ae48b7

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


As with the translate-restate method, a reconciliation of equity acts as a check of the calculations. A reconciliation of equity also is a convenient point at which to translate the functional currency amounts determined in the preceding tables into dollar equivalents and is a convenient way to compute the translation and parity adjustments.

##### [255-10-55-82](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-82)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

Record version: sha256:3cea87f4322c2b937a6131faa9fe6353b91c3c80684f0b53ff739226bb65a7ca

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


If beginning and ending equity are restated to average 19X6 CFC using the local index, the reconciliation of equity under the restate-translate method would be as follows.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-2EEA1FDD-5532-42F1-B44D-933D63879904-low.gif)
    
    (000s) Exchange (000s) CFC Rate CFC$ "Equity at 12/31/X5 in average 19X6 CFC (FC 2,450 \[paragraph 255-10-55-59\] × 158 ÷ 144)" " CFC 2,688 " 1.20 " CFC$ 3,226 " Income from continuing operations (paragraph 255-10-55-77) 225 1.10 247 Purchasing power gain (paragraph 255-10-55-78) 77 1.10 85 Excess of increase in specific prices over increase in general price level (paragraph 255-10-55-79) 480 1.10 528 Translation adjustment (paragraph 255-10-55-84) (616) " CFC 3,470 " " CFC$ 3,470 " "Equity at 12/31/X6 in average 19X6 CFC (FC3,800 \[paragraph 255-10-55-59\] × 158 ÷ 173)" " CFC 3,470 " 1.00 " CFC$ 3,470 " CFC: Average 19X6 constant functional currency CFC$: Translated dollar equivalents of constant functional currency amounts using the restate-translate method

##### [255-10-55-83](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-83)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

Record version: sha256:151dc7ef886d20eda89517a57ea8d4f5adef1be7cc2aa5210e3588b0c867ec71

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The translation adjustment is the amount needed to balance the CFC$ reconciliation of equity. The adjustment may be computed as the sum of the following:

1.  a
    
    The change in exchange rates during the period multiplied by the restated amount of net assets at the beginning of the period
    
2.  b
    
    The difference between the average exchange rate for the period and the end-of-period exchange rate multiplied by the increase or decrease in restated net assets for the period.

##### [255-10-55-84](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-84)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

Record version: sha256:857325ba68dd011ecb509cfb9af36ac2924b7466e1fe4a34bd0f7332deaacec7

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Accordingly, the translation adjustment under the restate-translate method is as follows.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-AC4B0517-5EB1-4DC8-8C1B-43D1036C6AF1-low.gif)
    
    (000s) Beginning-of-year equity (paragraph 255-10-55-82) " CFC 2,688 " Exchange rate change during 19X6 ($1.20 - $1.00) × (.20) $(538) "Increase in equity (3,470 - 2,688)" CFC 782 Difference between ending exchange rate and average rate for 19X6 ($1.10 - $1.00) × (.10) Translation adjustment (78) $(616) CFC: Average 19X6 constant functional currency

##### [255-10-55-85](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-85)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

Record version: sha256:87b566ae459cd17d0ad7dbe711186ee9a77de4355522f4f665d26c1a2b3244d9

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The reconciliation of equity in paragraph [255-10-55-82](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-82), in which beginning-of-year and end-of-year equity are stated in average 19X6 CFC, is needed to calculate the translation adjustment in CFC$. However, beginning- and end-of-year equity and the increase in equity must be stated in average 19X6 constant dollars in the supplementary current cost information.

##### [255-10-55-86](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-86)

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Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

Record version: sha256:df3f521fd5f7c080b7d09db71fac2c35b66df07e704ab905397a4c32cf0c32ba

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Beginning and end-of-year equity in average 19X6 constant dollars are C$ 3,000,000 and C$ 3,736,000, respectively, as computed in paragraph [255-10-55-71](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-71). Thus, the overall increase in U.S. purchasing power for the year is C$ 3,736,000 - C$ 3,000,000 = C$ 736,000. However, the reconciliation of equity in paragraph [255-10-55-82](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-82) indicates that the increase in equity for the year is CFC$ 244,000 (CFC$ 3,470,000 - CFC$ 3,226,000).

##### [255-10-55-87](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-87)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

Record version: sha256:d2446cc78337d1c41fb03dd07d47edae0640a4c2695e6646d9f345bdac5a5b71

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The difference between C$ 736,000 and CFC$ 244,000 is the [parity adjustment](https://asc.understandingaccounting.org/glossary/p/#parity-adjustment "The effect of the difference between local and U.S. inflation for the year on net assets (that is, shareholders' equity) measured in nominal dollars. If only the differential rates of U.S. and local inflation are reflected in the exchange rates (parity), the parity adjustment and the translation adjustment net to zero. Therefore, the sum of the parity adjustment and the translation adjustment represents the effect of exchange rate changes in excess of (or less than) that needed to maintain purchasing power parity between the functional currency and the dollar.") needed to adjust the ending net investment and the increase in the net investment to measures in average 19X6 constant dollars. Accordingly, the parity adjustment is C$ 736,000 - CFC$ 244,000 = $492,000. That amount represents the sum of the following:

1.  a
    
    The effect of the difference between local and U.S. inflation from December 31, 19X5, average for 19X6 on the restatement of opening equity to average units
    
2.  b
    
    The effect of the difference between local and U.S. inflation from average for 19X6 to December 31, 19X6, the restatement of ending nominal dollar equity to average units.

##### [255-10-55-88](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-88)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

Record version: sha256:75cfc2b33b0c54dfc82b840ab838f1ff892cb7a6b3131df39c0a769058dadc03

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The parity adjustment would be calculated as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-BABF1DA7-377F-4E28-9483-A2612D53ACEF-low.gif)
    
    (000s) Beginning-of-year equity (paragraph 255-10-55-59) " $2,940 " Difference between local and U.S. inflation from 12/31/X5 to average 19X6 (158 ÷ 144-298.4 ÷ 292.4) × 0.0767 $225 Equity at 12/31/X6 (paragraph 255-10-55-59) " 3,800 " Difference between local and U.S. inflation from average 19X6 to 12/31/X6 (158 ÷ 173-298.4 ÷ 303.5) × 0.0699 266 491 Rounding difference 1 Parity adjustment $492

##### [255-10-55-89](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-89)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:18:26.859Z to 2026-09-09T23:18:26.859Z

Record version: sha256:7327bf4e11c177b658f5c0e66119666b77cf74a4a7c273bb13965196fa01b1d6

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


For display purposes, the parity adjustment may be combined with the $(616,000) translation adjustment (see paragraphs

[255-10-55-83 through 55-84](https://asc.understandingaccounting.org/asc/255/10/#255-10-55-83)

). Accordingly, the net translation adjustment disclosed in the supplementary current cost information prepared using the restate-translate method would be $(616,000) + $492,000 = $(124,000). The components of current cost information based on the [restate-translate](https://asc.understandingaccounting.org/glossary/r/#restate-translate "An approach to converting current cost-nominal functional currency data of a foreign operation into units of constant purchasing power expressed in dollars. Using this approach, the current cost-nominal functional currency data are restated into units of constant purchasing power using a general price index for the foreign currency. After restatement into units of constant functional currency purchasing power, the current cost data are translated into dollars. This approach often necessitates a parity adjustment.") method thus would be as follows.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-C9582CB7-02F7-477E-AF54-9E0B4BC3E0E7-low.gif)
    
    (000s) "Beginning-of-year equity—$2,940 (paragraph 255-10-55-59) × 298.4 ÷ 292.4" " C$ 3,000 " Income from continuing operations—CFC 225 (paragraph 255-10-55-77) × 1.10 CFC$ 247 Purchasing power gain—CFC 77 (paragraph 255-10-55-78 × 1.10 85 Excess of increase in specific prices over increase in general price level— CFC 480 (paragraph 255-10-55-79) × 1.10 528 Translation and parity adjustments (124) Increase in equity in terms of U.S. purchasing power 736 "End-of-year equity—$3,800 (paragraph 255-10-55-59) × 298.4 ÷ 303.5" " C$ 3,736 " C$: Average 19X6 constant dollars CFC: Average 19X6 constant functional currency CFC$: Translated dollar equivalents of constant functional currency amounts using the restate-translate method