412 Planning and Forecasting
increase of costs over the last several years of the type of property, plant and
equipment used in the Company’s various businesses.”^56
Impact of Monetary Balances on Adjusted Results
In addition to the above two inf lation-adjusted income presentations, Tiger
provided additional income data because it did not feel that the required dis-
closures, adjusting mainly depreciation and cost of sales, were adequate. These
adjustments, in Exhibit 12.34, expand upon the information in Exhibit 12.33.
The final adjusted net incomes above tell a totally different story from the
initial display in Exhibit 12.33. Both measures of adjusted profits are sharply
higher than the unadjusted historical-cost results. The new income element re-
sults from the impact of changes in the general price level on the purchasing
power of monetary assets and liabilities. Tiger explains the impact of price
changes on monetary balances as follows:
A monetary asset represents money or a claim to receive money without refer-
ence to future changes in prices. Similarly, a monetary liability represents an
obligation to pay a sum of money that is fixed or determinable without refer-
ence to changes in future prices. Holding a monetary asset during periods of in-
f lation results in a decline in the value of the asset since the dollar loses
purchasing power when it is held. Conversely, holders of monetary liabilities
benefit during inf lationary periods because less purchasing power is required
to satisfy future obligations when they can be paid with less valuable dollars.^57Under the above reasoning, Tiger earned an unrealized purchasing-
power gain because its monetary liabilities exceeded its monetary assets.
This gain represents the reduction in the purchasing power that Tiger would
need to expend to discharge its net monetary-liability position. The impact of
both inf lation and def lation on purchasing-power gains, under conditions of
both monetary assets exceeding monetary liabilities (net asset exposure) and
EXHIBIT 12.34 Earnings adjusted for purchasing power gains from
monetary position: Tiger International Inc., (in
thousands).
Historical Current Constant
Financials Cost Dollar
Net income $42,375 $ 4,782 $(15,041)
Decrease in depreciation and interest expense
from the decline in the purchasing power of the
net liabilities — 82,195 82,195
Net income adjusted for the decrease in
depreciation and interest expense $42,375 $86,977 $(67,154
SOURCE: Tiger International Inc., annual report, December 1980, 39.