THE IMPACT OF INFLATION ON THE RESULTS OF ECONOMIC ENTITIES

In many countries, the primary financial statements are based on the historical cost, without taking into account the changes that occurred in the general level of prices or the increase in specific prices of assets held, excepting those cases in which the fixed assets and financial investments can be revalued. When using historical costs, the information is distorted, meaning it does not reflect clearly the events and the concepts of capital and maintenance of capital cannot be applied properly. In a hyperinflationary economy, high rates of inflation which occur for a long period of time, lead to the appearance of some problems which distort the data presented in the financial statements, and the ?real? profit includes a tax on ?inflation?, leading to the company`s decapitalization.