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

CHAPTER ONE

INTRODUCTION

1.1 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. According to Gill (1997), the issue of inflation in decision making had received very little or no attention. He attributes this to the fact that much of the literature existing then on economic analysis has been developed in the USA and other technically advanced nation where the rate of inflation are comparatively small. In recent time the need has risen for a more precise analysis because even in some of the advanced economies, the impact of inflation and decision can no longer be overlooked. According to Sizer (2000), in the case of consumer price index, Nigeria leads with an annual rate of 34%. To this effect, virtually all developed and developing counties, capitalist and noncapitalist have woken up to the reality of the need for accountant to strive to produce inflation adjusted accounts. This gives rise to the study of “The impact of inflation on reported profit and its implication for decision-making”.

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.

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

NAME:                       TITUS AYANI SOLA


BANK:                       GTB BANK
ACCT NO:                  0262412831
ACCOUNT TYPE:       SAVINGS

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

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Updated: 24th April 2019 — 3:53 pm

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