TABLE OF
CONTENT
CHAPTER ONE
1.0 Introduction
1.1. Statement of research problem
1.2 Objectives and proposes of study
1.3 Research Question and Hypothesis
1.4 Historical Background
1.5 Scope and limitation
1.6 Data collation proceedings
1.7 Definition of terms
CHAPTER TWO
2.0 Nature and concept of inflation
2.1 Causes of inflation
2.1.1 Excessive Demand over Supply of Goods
2.1.2 Unusual taste for imported goods
2.1.3 Wages increase unrelated to productivity
2.1.4 Hoarding
2.1.5 Bad management of resources
2.1.6 Rising cost of borrowing in the money market
2.1.7 The poor performance in the agricultural
sector
2.1.8 Declining capacity utilization in the
manufacturing sector
2.2 Types of inflation
2.2.1 Cost inflation
2.2.2 Demand inflation
2.2.3 Hyper inflation
2.3 Positive
effects of inflation
2.3.1 Inflation encourages greater output
2.3.2 Inflation induces employment
2.3.3 Inflation brings about inequality of income
2.3.4 Inflation favors debtors
2.3.5 Inflation can induce further investment and
development.
2.4 Negative effects of inflation
2.4.1 Adverse effect on the balance of payment
2.4.2 Fall in the value of money
2.4.3 Unemployment
2.4.4 Low Income earners suffer
2.4.5 Inflation generates industrial and social
unrest
2.4.6 Recession may set in
2.5 Nature and concept of income
2.5.1 Objectives and income measurement
2.6 A guide to dividend policy
2.7 Theoretical Framework
2.8 Determinants of income distribution
2.9 Problems
Associated with income measurement
2.10 The concept of inflation in relation to
income
2.10.1 Some
measures of income
2.10.2 Net
profit before tax
2.10.3 Net profit after tax
2.10.4 Gross profit
2.10.5 Return on investment
2.10.6 Comparing operating opening and
closing capital
2.11 Net Asset Valuation
2.11.1 Original/historic cost
2.11.2 Replacement cost
2.11.3 Net realizable value in the normal
course of business
2.11.4 Discounted present value
2.12 Income and inflation
2.13 Effect of inflation on low income
earners in Nigeria
2.13.1
High cost of living
2.13.2
Rise in level of crime
2.13.5
Rise in mental disorders.
2.13.6
Child abuse
2.13.7
Rise in divorce cases
2.13.8
Continuous migration in search for greener pasture
2.13.9
Demoralization and low level of productivity
2.13.10 High mortality rate
2.13.11 Persistent violence
2.13.12 Over-laboring
2.13.13 Political instability
2.13.14 Neglecting of education
CHAPTER THREE
3.0 Methodology
3.1 Data collation
3.2 Description of research instrument
3.3 Collection of sample work
3.4 Conduct of field work
3.5 Limitation of methodology
CHAPTER
FOUR
4.0 Data analysis and presentation
4.1 Introduction
4.2 Respondents characteristic
4.3 Summary of Analysis
CHAPTER FIVE
5.0 Summary
5.1 Summary
5.2 Conclusion
5.3 Recommendations
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.
Including a
similar changes in government revenue are closely related to stock market
movements.
Secondly if
government expenditures do not accommodate themselves to changes in revenue,
fluctuations in revenue will be reflected in deficits.
Thirdly,
when a deficit occurs, the treasury is obliged to borrow. And could repay the
debt during later surplus periods provided the direct ten revenue increased or
expenditure decreases enough to generate such a surplus.
Instead,
the typical modus operandi has been to have the Federal Reserve System in any
affected country to “Monetize” the debt by printing currency or expanding bank
reserves. This effectively generates the required surplus by indirect taxation
though inflation caused by an increased rate of monetary growth. In other
words, a change in returns predict a change in government revenues, fluctuating
revenue leads to periodic government deficit and increase in government debt.
The larger debt causes an increase in expected future indirect tax liabilities
both personal and corporate, because of debt magnetization and its consequence
inflation.
Income is
distributed arbitrarily. Not only does inflation reduce the standard of living
of people dependents on fixed income for example pensioner, but it benefit
debtors and penalizes (unless the loan is inflation –proofed”). Thus, the
stability upon which lending and borrowing depends is undermined.
The
difficulty in measuring changes in the general level of prices (that is, in the
value of money) is that, different kinds of prices-wholesale prices, retail
prices, security prices, import prices, etc. change differently. If we try to
measure changes in all prices, therefore our task would be stupendous. But,
more than that, it would lack practical significance suppose, for instance that
remaining unchanged. A measurement of the general level of prices would show a
rise, but this would be of little interest to the manual worker who owns no
securities.
When
measuring changes in the value of money, therefore, it is usual to concentrate
on the changes in the prices of those goods which are of most general
significance – the goods bought by the majority of people, for it is upon the
prices of these that the cost of living nearly depend.
1.2 STATEMENT
OF RESEARCH PROBLEM
A
problem which most manufacturing and services concerns encounter is one of
which to decide on how to incorporate inflation into planned unit cost, so that
cost of production as disclosed in the respective financial statement takes
cognizance of red cost rather than absolute cost. There is also the problem of
low to feature inflation when valuing both fixed and fictions assets and also
the provision for depreciation on these assets.
1.3 OBJECTIVES
AND PURPOSE OF STUDY
The
purpose, aims and objective of this research study is to critically examine the
following areas:
1.
The various purpose of measuring income of
individuals.
2.
The nature and concept of income
3.
Nature, types, concepts and application of inflation.
4.
Inflation in relation to income.
5.
Effects of inflation on low income earners.
6.
Recommendations that would be useful to students,
college authorities, government and Amy interested parsons towards the minimization
of inflation on income.
1.4 RESEARCH
QUESTION AND HYPOTHESIS
The question in which this research study attempts
to answer in the course of research are:
i Does Inflation
affect income measuring?
ii Is it
difficult to finance investment projects under inflationary conditions?
Hypotheses
is an assumption which can be tested about a population. The following
hypotheses have been selected.
i Inflation does not make inter-period
comparison difficult
ii There are problems in allocating cost and
revenue to specific time periods.
iii Profit on disposal of fixed assets are not
regarded as point of income.
iv Inflation does not affect dividends
proposal or paid to shareholders.
1.5 HISTORICAL
BACKGROUND
The recent experience in Nigeria and some West
African Countries suffering devaluation of their domestic currency, have proven
conclusively that the government expenditure and development planning could be
affected by inflation.
A
review of monetary allocation in the development plans in Nigeria could
illustrate these facts.
In
the years (1962-1968) development plan total was N2.36 Billion was allocated
and spent. In the years (1970-1974) development plan was a total of N3.1
Billion, which was allocated and spent. This was normal. But, in the year
(1975-1980) development plan of N30 Billion was allocated, but was later
increased to N42 Billion. Thus, the expenditure was increased from N30 Billion
to N42 Billion. Thus was unprecedented and inflationary.
In
the years (1980-1985) development plan of N82 Billion was planned for
expenditure. From 1985 to 1988 the amount budgeted hardly last 6 months.
These
methods of allocation and expenditure, which were not matched with real
productivity and employment generation, were enough to cause inflation in the
country.
It
was recalled that “Petrol-Naira” realized between 1988 and 2001 brought about
uneconomic and corrupt spending on the part of the government and inflation
reached a high level. Ever since a number of economic reforming methods were
put forward and actually used by companies in an attempt to give more
meaningful information’s to users of published accounts.
Based
on the aforementioned, it is obvious without any base that the Nigerian
leadership is too primitive and extremely corrupt considering the inflationary
trend counter pants in the advanced economic states like the U.S.A, the U.K.,
Egypt, South-Africa, Tunisia, etc.
1.6 SCOPE AND
LIMITATIONS OF STUDY
This
project researches on how individuals operating in Lagos measure their income
inrelation to the Time Value of money. It further examines the application and
effects of statement of accounting standard practice 16 (Cost Accounting) and
its subsequent suspension by accounting standard committee on the income as
measured by the individual.
The
research will further look into the objectives of the work, aimed at providing
empirical evidence on the monthly inflationary expectation in Nigeria between
the periods of 1991 to 1995. The study will be able to determine whether the
expected inflation rates are independent or there is a positive or negative
inflation. Also effect of inflation on low-income earners and effect on income
measurement will be determined. Changes in consumer index will be used to
measure inflation rate. This is because in Nigeria, though there is no free
market for short-term interest rate. In most cases, the rate are set and
heavily controlled by the government and also while interest rate ignores
sprains seasonality in inflation rate unlike the consumer price index, the
variability of monthly inflation rate is very large because if index
construction, i.e. frequent sampling of some items inducing a strong seasoned
pattern.
1.7 DATA
COLLECTION PROCEDURE
The necessary data as regarded the research will be obtained
through the following:
1.
Questionnaire
2.
Direct Interviews
3.
Secondary Source
1.8
DEFINITION OF TERMS
INFLATION: the rise
prices and ways caused by an increase in the money supply and demand for goods
and resulting in a fall in the value of money. The problem possed by
unemployment has given way to a concern
over inflation. Most economic policy which are vibrant may be seen as a
constant fight to sustain prices increase and the distortions created by them.
O INCOME: this is
general defined as money received over a certain period usually as payment for
work done or as interest on investment. As a result of the employment of
factors of production during a year a country achieves a certain output of
goods and services, its total volume of production for that year. For them
services to production factors, labour in particular, is general paid for its
service in money, this payment being variously known as wages.
POLICY: this is
government regulations laid down for a purpose. The policy of an economic
vibrant country is meant to have a positive effect on the overall lives of its
subjects. These enhance the details of the country’s balance of payments, the
national income and summaries of production of the basic sectors. Coal. Iron
and steel, textiles, agriculture, banking. The distribution of labor among
different industries, investment in various industries and personal expenditure
on consumers goods.
BUDGET: It is a
financial statement of government proposed earning and expenditure for the nest
financial year. In each case the previous year’s estimate and outturn are shown
in some countries, for example sureden, two separate budgets are presented, one
covering current and the other capital expenditure.
EARN: Amount or
payment entitled to an individual or organization after rendering some
services. As a result of employment of the factors of production during a
particular year a county achieves a certain output of goods and services, its
total volume of production for that year. For their services to production
factors are generally paid for their services in money, these payments being
generally known as earn.
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