2023 Inflation Accounting in Financial Statements: An Application Example

Abstract

Purpose- In periods of high inflation, the ability of financial statements to reflect the reality weakens, which may cause users of financial information to make wrong decisions. In this context, the aim of the study is to reveal the effects of inflation accounting application, which entered into force in accordance with the legal regulations in Turkey in 2023, on the financial statements of the enterprises.
Design/ methodology/approach- A practical method has been adopted in the study. The inflation accounting application was carried out based on the financial statements of an enterprise selected as an example for the year 2023. In this context, non-monetary assets of the enterprise were determined. For each asset, the date of adjustment was determined and the adjustment coefficients of the relevant dates were calculated. The amounts of non-monetary assets were updated with the adjustment coefficients, and accordingly, the balance sheet of 2023 was restated in accordance with inflation accounting.
Findings - As a result of the inflation adjustment, the non-monetary assets of the entity have increased. These increases were reflected in the ‘Retained Earnings’ account in the accounting system. It was observed that the adjusted values provided more accurate information to the users of the financial statements.
Discussion-The findings indicate that inflation accounting ensures fair presentation of financial statements, especially in periods of high inflation. Adjustments to non-monetary items have reflected the financial position of the company more realistically; however, these adjustments are recognised in the balance sheet as profit for the period and are not subject to taxation. This situation reveals that inflation accounting is used only to adjust the financial statements for the effects of inflation and has no direct effect on the tax base.