ABSTRACT
Political stability in Nigeria has led to a marked improvement in the general operating environment in the country. Hence capital maintenance is looked into in the period of inflation as the only way out.
The word inflation is not a new phenomenon; it has been experienced by most countries in the world at some stages in their history. Mere looking at this statement, ones mind will really run to developing countries; but it is history that the UNITED KINGDOM in 1974 when they could no longer sit back and watch inflation ruin them set up the Inflation Accounting Committee with Fianers Sandilands as chairman, to look into the problem.
Since Nigeria’s inflationary trend is monetary, prices have been rising because many people including the government have been spending it. This is to say that uncontrolled inflation can dislocate the economy and can cause social upheaval. As such, this may create havoc if left uncontrolled.
TABLE OF CONTENTS
CHAPTER ONE
1.0Introduction 1
1.1 Statement of the problem 10
1.2Objective and Purpose of Study 11
1.3The Research work hypothesis 13
1.4The scope and limitations of the study 14
1.5Definitions of terms 16
CHAPTER TWO
2.0Literature Review 18
2.1 Historical Background 18
2.2Capital 21
2.2.1Capital accumulation structure 23
2.3Inflation 25
2.3.1Types, causes and effect of inflation 26
2.3.2Inflation and asset choice 30
2.3.3Inflation, taxation and corporate decisions 32
2.4Capital maintenance and profit determination 46
2.5Accounting and Inflation 52
CHAPTER THREE
3.0Research Design 70
3.1 Sources of data 70
3.2Method of data analysis 72
3.3Area of study 75
CHAPTER FOUR
4.0Analysis and Interpretation of data 76
4.1 Data presentation 76
CHAPTER FIVE
5.0Summary, Recommendation and Conclusion 91
5.1 Summary of findings 91
5.2Conclusion 93
5.3Recommendation 94
BIBLIOGRAPHY 97
QUESTIONNAIRE 99
INTRODUCTION
The word inflation is not a new phenomenon; it has been experienced by most countries in the world at some stages in their history. Mere looking at this statement, ones mind will really run to developing countries; but it is history that the UNITED KINGDOM in 1974 when they could no longer sit back and watch inflation ruin them set up the Inflation Accounting Committee with Fianers Sandilands as chairman, to look into the problem. Even the almighty UNITED STATES OF AMERICA went through it sometime in sixties before they come to present economic stability. So, one will not be surprise when countries like ours and some other like the Asian countries and even Latin American countries are mentioned as suffering from this CANKER WORM called inflation.
There are so many definitions on inflation. Solow (1979), for instance, sees inflation as going on when one need more and more money to buy some representative bundle of goods and services, or a sustained fall in the purchasing power of money. It is a sustained rising trend in the general price level or put in another way, it is a high and persistent rise in the price level.
Inflation is a rise in the general level of all goods and services. The general price level thus varies inversely with the purchasing power of a unit of money. For example if prices double, purchasing power decreases by one-half. If prices halve, purchasing power doubles. Therefore, inflation is also a reduction in the purchasing power of a unit of money. The opposite of inflation is deflation.
TYPES OF INFLATION
(a)Demand – Pull Inflation: This type of inflation takes place when aggregate demand is rising while the available supply of good is becoming increasingly limited. It is induced by excessive demand not matched with increases in supply.
(b)Cost-Push Inflation: this occurs when prices increases because factor payment to one or more groups of resource owners rise faster than productivity or technical efficiency. Typical forms of cost-push inflation are wage-push, profit-push and commodity.
(c)Hyper-Inflation: Hyper-Inflation occurs when the price level rises at a very rapid rate.
Causes and Control of Inflation in Nigeria
Causes: There are several causes of inflation in Nigeria.
(1)Excessive money supply caused by ineffective monetary and fiscal policy.
(2)Fall in the supply of goods and services especially agricultural product causing demand to rise and price to rise as well.
(3)Budget deficit or government expenditure programmers is a major cause of inflation in developing nation. Too much expenditure by government can cause inflation.
(4)Too much importation of goods and services can cause inflation especially in developing nation.
(5)An increase in population can put more pressure on the little goods and services thereby price will rise.
(6)The activities of the middleman in the distribution of goods and services can also cause severe inflation in our economy.
(7)Excessive demand by consumers and higher production cost also can cause inflation.
(8)Monopolistic practices with respect to production, importation and distribution of certain essential commodities can cause inflation.
(9)Increase in wages and salaries, and competitive attempts by various economic and social groups to increase their share of the “national cake” can also cause inflation.
Control
(1)The setting of price control board by the government of fix maximum prices changed for certain commodities is one way of controlling inflation but experience shows that this system does not work.
(2)Monetary policy is another way of traditional monetary instruments to reduce the quantity of money in circulation. The techniques applied include:
(a)Increase in the bank or discount rate;
(b)Increase
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