General Price – Level – Accounting (GPLA)

What is General Price Level Accounting (GPLA)?

This is a common approach for accounting impact of inflation on companies’ financial statement. Owing to inflation, any particular company may report increased profits and higher returns for the financial year and inflation adjusted reports may not reflect any real growth or improvement. The GPLA approach observes changes occurring in general price level and not individual items.
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This accounting process includes inflation; any changes in price levels and the current purchasing power of a company, along with its long term assets and liabilities. This method gives a more accurate picture of a particular company’s finances.

This method is particularly used in nations that are experiencing hyperinflation. Ignoring this process of general price level accounting might lead to distorting of financial statements. The profits reported might exceed the amount of earning that can be shared with distributors keeping intact a company’s operations. This might also hinder the future projections of earning for a company as the measured financial statements would reflect erroneous facts and figures.

Edited and Updated 15th February 2014

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