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Inflation Accounting

Inflation accounting is the process of measuring and calculating inflation in an economy. Inflation refers to a situation in which general price levels increase. Inflation accounting aims to measure these price increases and monitor them with economic indicators. Some basic indicators used to measure inflation are as follows;

  • Consumer Price Index (CPI)
  • Producer Price Index (PPI)
  • Core Inflation
  • Inflation Rates

Will there be inflation accounting?

In the last bulletin of the year, the Capital Markets Board (CMB) announced that companies listed on the stock exchange will apply inflation accounting starting from their annual financial reports for the accounting periods ending on 31.12.2023. The inflation accounting system, which some of the business world sees as a ‘necessity’ and some of them oppose on the grounds that it will increase the tax burden, will be automatically activated on January 1, 2024.

To which accounts is inflation accounting applied?

Inflation accounting is applied to accounts classified as non-monetary items, such as fixed assets, inventories, equity accounts.

How is the inflation rate calculated?

You can use the formula below to calculate the inflation rate:

Inflation Rate=(FDI˙-BDI˙BDI˙BDI˙)×100Inflation Rate=(BDI˙FDI˙BDI˙-BDI˙)×100

The ingredients in this formula:

BDI Initial Price Index

FDI End Period Price Index

An example calculation:BDI˙=120,FDI˙=130BDI˙=120,FDI˙=130

Enflasyon Oranı=(130−120120)×100=10120×100≈8.33%Enflasyon Oranı=(120130−120​)×100=12010​×100≈8.33%

In this calculation, prices increased by 8.33%.

Inflation for tax laws;

With the Law No. 5024; inflation adjustment was first introduced in Turkey with the Law No. 5024 under the Tax Procedure Law No. 298. Inflation generally causes money to depreciate in value. Since tax laws are generally based on nominal values, inflation has implications for both taxpayers and the government. As of the end of 2023 calendar year (Taxpayers who are assigned a special accounting period, as of the end of the special accounting period ending in 2024), the financial statements for the 2023 accounting period should be subject to inflation adjustment, and the inflation adjustment for 2023 will not have an effect on the corporate tax base and no inflation adjustment tax will be paid for the 2023 accounting period.

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