Price Level Changes and Financial Statements at the Threshold of the New Frontier.

Abstract In the article, the author presents a critical appreciation of the article "A technique to Adjust Financial Statement Data for Changing Price Levels," by Richard A. Ridilla, published in the October 1960 issue of the journal "The Accounting Review." This article was an attribute an article by the author published in the July 1958 issue of the journal, on the treatment of the problem of income determination during periods of changing price levels. However, the author believes that there has been a critical difference between his and Ridilla's application of this idea. The author states that he would pass into current economic income all improvement occurring during the fiscal period, regardless of whether such improvement was realized through the revenue cycle. On the contrary, Ridilla would retain the realization concept but would, through the balance sheet approach, effect a charge to income for depreciation of fixed assets based on their current replacement value and would, as a corollary, effect a credit to income for any long-term indebtedness redeemed during the year. The author submits that Ridilla's emphatic and unequivocal conclusion is unwarranted, only by the presumption of the validity and applicability of the realization concept and not by any basic rule of reason.