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INFLUENCE OF INFLATION ON REPORTED PROFIT FOR DECISION MAKING IN FINANCIAL INSTITUTIONS IN NIGERIA

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

Inflation is a word that most people hear these days and virtually nobody would like to

experience or come in contact with. Unfortunately it has come to stay with us. Clautier and

Underdown (2001) described it as what hits the consumer’s pocket by eroding the purchasing

power of the currency and sometimes acts as hidden tax. It reduces nation competitiveness in

world markets and can have a general debilitating effect on almost all type of economic

activities. When one thinks of inflation what comes to mind is the dynamic situation of persistent

increase in the price level which results in the diminution of real purchasing power of naira at

your disposal at any time.

Inflation, be it creeping, cost push, wage push or profit push is a condition of unrelenting price

spiral. It has been generally described as a situation of rising prices arising from too much money

chasing too few goods and always results when the aggregate demand exceeds the aggregate

supply of goods and services. It has the net effect of reducing the purchasing power of the

monetary unit. When this reduction in the purchasing power of money is gradual as it was the

case in the early 60s, the recipient of fixed income is not worried. However, when change in

price is a run-away (hyper) inflation as has been experienced in Nigeria since late 70’s the entire

economic system will be at the brink of collapse (Emekekwe, 2008).

However, inflation is not completely dreadful. A certain level of inflation is desirable in order to

ensure sustainable economic growth. Beyond that level, it becomes a hydra –headed monster that

has baffled monetary economics over the years, (Emekekwuse, 2008). At the undesirable level,

inflation greatly affects financial decisions thereby constituting big source of uncertainty in the

economic world.

STATEMENT OF PROBLEM

The world is in the grip of soaring inflation. The inflation if it crosses the single digit is an index

of a weak economy. Inflation can prompt trade unions to demand higher wages, to keep up with

consumers prices. Rising wages in turn can help fuel inflation.

Inflation has negative effects, because it reduces the value of money, resulting in uncertainty of

the value of gains and losses of borrowers, lenders, and buyers and sellers. The increasing

uncertainty which inflation brings discourages saving and investment. It also has serious effect

on reported profits because of high increase in the devaluation of money. The value of the

reported profit today might be less tomorrow because of inflation and the decision made today

on that reported profit may be misleading tomorrow because of inflation.

These problems arise because the financial reporting concept is based on age old concepts which

for long have ignored the presence of inflation and its implication for decision making both by

management and external users of reported profit. Overstated profits are measured in monetary

terms; rising prices will induce external users to make investment decision without appreciating

the consequences of the reduced value of their investment

How to get complete project materials


Step 1: make payment of N2,000 to the below bank details


NAME:                       TITUS AYANI SOLA
BANK:                       FIRST BANK PLC
ACCT NO:                  3111741042
ACCOUNT TYPE:       SAVINGS
AMOUNT:                  N2000

STEP 2: AFTER PAYMENT SEND THE PROJECT TOPIC AND YOUR EMAIL ADDRESS TO 08063666753

Updated: 6th October 2017 — 12:33 pm

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