What type of inflation accounting do you favor under high inflationary periods?

Do you think tax allocation can improve the prediction of future tax payments in the short run?

What are the economic consequences of SFAS No.87?

To determine the type of inflation accounting that would be favorable under high inflationary periods, we need to consider the specific characteristics of the inflationary environment. There are generally two types of inflation accounting methods:

1. Historical Cost Accounting: This method does not take into account the impact of inflation. It records transactions at their original costs, without adjusting for changes in the general price level. This approach could be suitable when inflation is low and stable, as the impact on financial statements is not significant.

2. Current Cost Accounting: This method adjusts financial statements for changes in the general price level by restating historical costs to current values. It requires the use of price indexes or other inflation indicators to update values. This approach is more appropriate during high inflation periods when the impact of inflation on financial statements is substantial.

Determining which method to use depends on factors such as the inflation rate, stability, and the industry in which the company operates. A detailed analysis of the specific circumstances surrounding the inflationary period should be done to make an informed decision.

Regarding tax allocation, it involves assigning or distributing income or expenses between different jurisdictions or periods for tax purposes. The objective is to properly reflect the tax impact in financial statements and improve the prediction of future tax payments in the short run.

Tax allocation can be effective in enhancing the accuracy of future tax payment predictions. By allocating income or expenses properly, companies can better estimate their tax liability for the upcoming period, leading to more accurate financial forecasts and budgeting.

However, it's worth noting that tax allocation can be complex and may require expert advice to ensure compliance with tax regulations and avoid potential risks. Companies should consult with professional tax advisors or accountants to assess the suitability and feasibility of tax allocation given their specific circumstances.

SFAS No.87 refers to the Statement of Financial Accounting Standards (SFAS) issued by the Financial Accounting Standards Board (FASB) in the United States. SFAS No.87 specifically pertains to accounting for pensions.

The economic consequences of SFAS No.87 mainly revolve around how it affects the financial reporting of pension plans. Some of the key implications include:

1. Increased Transparency: SFAS No.87 requires companies to disclose more detailed information about their pension plans in their financial statements. This improves the transparency and understanding of pension costs and obligations for both investors and stakeholders.

2. Impact on Financial Statements: The standard's requirements may result in changes to the balance sheet, income statement, and cash flow statement. The recognition of pension assets and liabilities and the amortization of gains and losses can affect the reported financial position and performance of companies.

3. Potential Influence on Decision-Making: The accounting treatment prescribed by SFAS No.87 may influence how companies design and administer their pension plans. It could impact decisions relating to plan funding, investment strategy, and benefit design, keeping in mind the potential financial implications and reporting requirements.

It is important for companies to understand and comply with SFAS No.87 to ensure accurate financial reporting and to meet regulatory requirements. Consulting with accounting professionals or referring to the specific provisions of SFAS No.87 can provide further insights into its economic consequences.