Expected and Unexpected Price Level Changes.

Abstract The article deals with the changes in the American Institute of Certified Public Accountants' recommended procedures for implementing general price level adjustments. Three assumptions were made during the analysis. Assets and liabilities are amortized so that the book value of the asset or liability is equal to its expected imputed value. This amortization approach results in an anticipated book yield, which in every period is equal to the anticipated internal rate of return. The imputed value of non-monetary assets and liabilities at the end of the period and the cash flow from non-monetary assets and liabilities during the period are proportional to the general price level at the end of the period. The price level does not affect the imputed value of monetary assets and liabilities and the cash flow from monetary assets and liabilities. There are no changes in expectations except for unexpected changes in the proposal, which is free from such limitations. Price level adjusted can be used to compute the "real" internal rate of return of the firm.