CHAPTER ONE
INTRODUCTION
The tendency of price to rise, and of the value of money to fall is known as inflation. One of the main objectives of any responsible government is to control the rate of inflation because of its undesirable effect on the economy. In most developed countries, the economic specter of the inter-war period was the demoralizing level of unemployment. The worry of unemployment has given way to a concern over inflation. Most economic policy may be seen as a continued fight to sustain increase and the distortions created by them.
One of the most important objectives of both individual and corporate firm is the generation of sufficient income to meet inflation. In the foregoing contact, values placed on reputed income will be examined with reference to inflation is a global pheromone which may be defined as continuous increase in prices.
When there is too much money in circulation, people easily get much money to spend let us imagine a primitive economy producing food as its only commodity and we will assure that the money supply in such economy consists of N10 (Ten Naira) notes, each of which can be used only ones.
In year one 10,000 units of food are sold at N10, each and consumed if in year two the same amount of food is produced but the supply of money is increased to N20,000 then people with access extra money will be prepared to offer more for each unit and prices will definitely rise towards N20 each.
If on the other hand, the supply of food has increased by 100 percent as well as we would expect prices to have stabilized.
The relationship is far more complex than this suggests, but the supply of income is an important factor to be considered in the question of inflation.
This has been thought to have been, when financial accountants do while presenting a financial report.
The way in which government defines money supply wary to some extant from one country to another.
In Nigeria, for example, it is defined as the sum of or the amount of currency in circulation and the amount of money held “ on demand’ by the banks.
The Nigerian money supply expanded rapidly during the inflation of the late 1970s as a result of the rapid increase in demand relatively to supply an expansion that was financed by the country’s new and endowed oil wealth.
Oil was then accounting for more than 90% of the revenue accruing to Nigerian Government.
Ever since then the rate of inflation has been on the increase that income is no longer worthy of anything.
In view of these, the statement of Accounting standard practice the (current cost Accounting) was issued by the accounting standard committee. Hence, this research is aimed at considering the effects of inflation on income measurement and effects on low-income earners.
For the first twenty-five years after the war, successive governments manage to keep the rate of unemployment at less than 3% by maintaining a high level of aggregate demand.
This however resulted in the periodic balance of payment crises as income were absorbed by high incomes and exports became difficult to sell though rising prices. With fixed exchange rate under the Breton Woods aggregate, any strain on balance of payment result in a fall in the gold and foreign currency reserves. Thus, the “stop go policy developed”.
According to most financial theories expected inflation should be the basic underlying influence in asset pricing since it might affect the expected cash flows and the discount rate. In most authoritative and copperhead unanticipated inflation as well as changes in expectation as explanatory variables.
Stock market returns signaled changes in the inflationary process because of the following chain of macro economic events.
Firstly the government principal revenues are corporate taxes. When stock prices increase or decrease in response to anticipated changes in economic conditions, personal and corporate incomes move in the same direction.