20.8 INFLATION ADJUSTMENTS IN THE NETHERLANDS. Dutch accounting per-
mits current cost accounting but does not require it. Thus, Dutch companies have a
choice between current cost and historical cost. Contrary to widespread belief, his-
torical cost accounting is more common than current-cost accounting in Dutch fi-
nancial reporting. N. V. Phillips has been the most cited example of a user of cur-
rent cost reporting although they have recently reverted to historical cost
accounting in the published financial statements. Heineken is now the only major
Dutch company using current-cost accounting in external financial reporting.^19
Exhibits 20.7 through 20.9 are based on an earlier version of Phillips’s published
financial statements.^20
Notice that in Exhibit 20.7 the current cost income is reconciled to the historical
cost income. A major factor in determining the net profit is the large charge against
income for an “Addition to revaluation surplus realized for financing with Share-
holders’ interests.” This is described as part of the gearing adjustment explanation in
the companies footnotes, as follows:
20 • 16 ACCOUNTING FOR THE EFFECTS OF INFLATIONMillions of Euros 2005 2004Sales 42,411 36,536
Costs and expenses:
Cost of sales –32,209 –27,633
Selling and general expenses –8,009 –40,218 –7,059 –34,692
Trading profit 2,193 1,844
Revaluation included in costs (^710) 663
Trading profit on the basis of historical
cost 2,903 2,507
Financing charges –1,977 –1,225
Miscellaneous income and charges –21 59
Tax on profit –181 –452
Profit after tax on the basis of historical cost 724 889
Addition to revaluation surplus realized for
financing with shareholders’ interests –354 –345
Profit after tax 370 544
Share in net result of nonconsolidated
companies 86 95
Minority interests –134 –115
Profit before exceptional items 322 524
Exceptional income and charges
Elimination of provision for lifetime risks of
fixed assets as from January 1, 2005 540 –600
Restructuring provision –525
Tax on exceptional income and charges 20 290
Reduction of United Kingdom tax provision (^35) (^131) –179
Net profit 357 345
Exhibit 20.7. Combined Statement of Results.
(^19) Nobes and Parker, 2000, p. 168.
(^20) Enthoven, 1982.