The Fourth Directive of the European Economic Community retains the historical
cost perspective but allows member states to authorize the use of replacement value
measurements or other methods based on current or market values. Any difference
arising from this must be aggregated and shown as a “revaluation reserve” in own-
ers’ equity.
Among the major countries in the world that have addressed the inflation issue, the
United States’ experience with FAS No. 33 and FAS No. 89 has been covered earlier.
The United States required some companies to report current cost/constant dollar in-
formation from 1979 to 1985. The standard was only applied to those companies with
either
(a) Inventories and property, plant, and equipment (before deducting accumulated de-
preciation, depletion, and amortization) amounting in aggregate to more than $125 mil-
lion; or
(b) Total assets amounting to more than $1 billion (after deducting accumulated depre-
ciation).^24The United Kingdom required inflation adjustments with SSAP No. 20, “Current
Cost Accounting” for accounting periods starting on or after January 1, 1980. The
standard extended to a far broader range of companies than the U. S. standard, be-
cause it applied to all listed and unlisted companies meeting any two of the follow-
ing criteria: sales of £5 million or more, total assets of £2.5 million or more, and 250
or more employees.
The major differences between the U.K. standard and FAS No. 33 were twofold.
First, the U.K. standard required only current cost, unlike the U.S. standard that dealt
with current cost and constant dollars. Second, the U.K. standard required both a cur-
rent cost income statement and a balance sheet, while, as we have seen earlier in this
chapter, the U.S. standard had an income statement focus.
The U.K. standard gave latitude in the presentation of the inflation-adjusted data,
as follows:^25
This requirement to include current cost information in addition to historical cost ac-
counts or historical cost information can be complied with by:
(a) presenting historical cost accounts as the main accounts with supplementary current
cost accounts which are prominently displayed; or
(b) presenting current cost accounts as the main accounts with supplementary historical
accounts; or
(c) presenting current cost accounts as the only accounts accompanied by adequate his-
torical cost information.Treatment of the gain or loss on the net monetary position was also different from
the United States, where a single figure was calculated based on a general price level
index. In the United Kingdom, a monetary working capital adjustment was calcu-
lated, recognizing the effect of specific price changes on the total amount of mone-
tary working capital (trade receivables less trade payables). A gearing adjustment
based on the ratio of total debt to total capitalization was evidence that it was not nec-
20 • 22 ACCOUNTING FOR THE EFFECTS OF INFLATION(^24) FAS No. 33, paragraph 23, FASB, 1979.
(^25) SSAP No. 16, paragraph 48.