Author Update- Summer 2002

Chapter 7 – Accounting for Changing Prices

Page 264- replace the second full paragraph with the following.

The gearing adjustment acknowledges that the income statement need not
recognize the additional replacement cost of operating assets so far as they are financed
by debt. MWC, in the symbolic expression above, is the sum of trade accounts and notes
receivable, prepayments and inventories not subject to the cost-of-sales adjustment, less
any trade accounts and notes payable and accruals. MWCA is based on a change in the
relevant index applied to each element of MWC. The index for receivables reflects the
current cost of items included in the applicable cost of goods and services sold, while the
index for payables reflects the cost of items financed by the payables.

The gearing adjustment is derived by multiplying the sum of the three current cost
adjustments (for depreciation, cost of sales and monetary working capital) by the ratio of
net borrowings to net operating assets. Net borrowings are the difference between all
liabilities and provisions fixed in monetary terms, other than those in MWC, and all
current assets , other than those subject to a cost-of-sales adjustment and those included
in MWC. Net operating assets include fixed assets, inventories and MWC disclosed in
the reporting entity’s historical cost balance sheet.

Page 278b

In Exhibit 7-10, the exchange rates for the year 20X0 should all be 1/1.800, including
those used to translate cash and equipment, net. The translated cash figure for 20X0
should be 1,389, not 389.

Page 288b

At the end of the 3rd paragraph in Case 7-1: Kashmir Enterprises, the figure Rpe480,000
should be Rpe4,480,000.
b
We are grateful to Cheryl Fulkerson for bringing these typos to our attention.