International Finance and Accounting Handbook

20 • 20

Exhibit 20.10.

(Continued

)

Inflation Corrected Amounts

Historical Amounts

Assuming a 25% Rate of Inflation

Income Statement

Year Ended 12/31/X5

Year Ended 12/31/X5

Operating Profit

R$ 500

Operating Profit

R$ 500

Depreciation of period

100

Depreciation of period

100

(historical)

Correction of depreciation

25

125

____

__________________

Trading profit

400

Trading profit

375

Inflationary loss:

Exchange loss on foreign debt

(100)

Exchange loss on foreign debt

(100)

Monetary correction on local debt

(100)

Monetary correction on local debt

(100)

_____

Gain on correction of balance sheet

50

f

(150)

___

_____

Net profit

R$ 200

Net profit

R$

225

________

_________

________

_________

aRepresents the original R$1,600 plus a 25% (R$400) adjustment.b25% of the original R$300.c25% of the period’s depreciation expense (typically based on the average value of fixed assets).d25% of the original capital balance of R$800.eRepresents the original R$300 plus a 25% (R$75) adjustment.fGain on correction of the balance sheet:

Correction of permanent assets

R$ 400

Correction of depreciation allowances

(75)

325

___

Correction of capital

(200)

Correction of reserves

(75)

(275)

____________

50