ABSTRACT
The entire theory of historical cost is based upon a comparison of like with like, an accumulation over successive periods of money units of equal significance. Once currency values become unstable, accounts, of necessity, tend to lose their reliability. In some reprehensible cases, advantage was taken, for income-tax purposes, of the initial allowance, but the published accounts reflected neither the corresponding charge for extra depreciation nor the extra taxation which would be payable in subsequent years, reporting without comment merely the reduced requirement for taxation of year. It reverses the settled accounting convention that the cost of a machine with a five-year life is an expense which should be spread over years in which the expense is suffered. If fluctuating price levels impair the quality of historical accounting, they play an even worse part in the field of managerial accounting, where calculations of sufficiency of funds, or surplus up the break-even point, may be matter of very close tolerance.
