Intermediate Accounting (16th Edition)

Published by Wiley
ISBN 10: 1118743202
ISBN 13: 978-1-11874-320-1

Chapter 2 - Conceptual Framework for Financial Reporting - Review and Practice - Questions - Page 62: 14


Ideally, the monetary unit assumption assumes that the unit of measure (.i.e. the dollar) remains reasonably stable so that monetary units of different years can be added without any adjustments. Therefore, the value of the dollar fluctuates greatly over time thus the monetary unit assumptions looses its validity. On the other hand, FASB (SFAC No. 5) indicated that it anticipates the dollar un-adjusted for deflation or inflation to be used to measure items recognized in financial statements.

Work Step by Step

Most importantly, its only when circumstances change dramatically or unexpectedly that FASB can consider and settle on a more stable measurement unit.
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