Current Purchasing Power and it’s Utilisation in Annual Reports of The companies with Reference to Indian Chemical Companies

This paper investigates the use of inflation accounting by current purchasing power method and its effects on financial statements of Chemical companies in India. Therefore the annual reports of 5 Chemical companies listed in Bombay Stock exchange, India has been collected. All the companies prepare the annual reports in historical cost method; therefore conversion to Current Purchasing Power (CPP) has been done. Then the ratios were calculated on both historical cost and CPP of financial statements to form two sets of ratios. An analysis of paired sample t-test has been conducted on some financial ratios of these companies to see the differences between two methods. At the end the results show that a significant difference between adjusted cost based financial ratios and historical cost based financial ratios occurs only for return on equity (ROE) and return on asset (ROA) and there is no significant change in operating profit ratio (OPR), current ratio (CR) and quick ratio (QR).