The gearing adjustment in inflation accounting: The financing sequence assumption
The application of a gearing adjustment in inflation accounting has always resulted in the problem of determining a financing sequence. A decision has to be taken whether certain categories of assets are financed with equity and/or loan capital. Financial theory of the last few decades quite convinc...
| Main Authors: | , , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
AOSIS
1989-09-01
|
| Series: | South African Journal of Business Management |
| Online Access: | https://sajbm.org/index.php/sajbm/article/view/956 |
| _version_ | 1818140746452041728 |
|---|---|
| author | M. A. Van Hoepen I. J. Lambrechts F. J. Mostert |
| author_facet | M. A. Van Hoepen I. J. Lambrechts F. J. Mostert |
| author_sort | M. A. Van Hoepen |
| collection | DOAJ |
| description | The application of a gearing adjustment in inflation accounting has always resulted in the problem of determining a financing sequence. A decision has to be taken whether certain categories of assets are financed with equity and/or loan capital. Financial theory of the last few decades quite convincingly revealed that there are no logical grounds for relating certain assets to certain liabilities and/or equity. This proportional financing assumption is discussed and illustrated in the article for the so-called Van der Schroeff-system of income demermination in order to point out the sensitivity and financial consequences of this assumption for financial decision making. The assumption about the financing sequence does have a definite influence on the gearing adjustment. Further influences are on the income statement and the message given to shareholders and the investment public; the composition of the asset structure and consequently the risk composition of the assets; the composition of the financing structure and consequently the financial risk as portrayed by the balance sheet; and the marginal financing ratios needed to maintain the original gearing ratio. |
| first_indexed | 2024-12-11T10:48:53Z |
| format | Article |
| id | doaj.art-ddbdfef484a942c990a3a9604d2a0b88 |
| institution | Directory Open Access Journal |
| issn | 2078-5585 2078-5976 |
| language | English |
| last_indexed | 2024-12-11T10:48:53Z |
| publishDate | 1989-09-01 |
| publisher | AOSIS |
| record_format | Article |
| series | South African Journal of Business Management |
| spelling | doaj.art-ddbdfef484a942c990a3a9604d2a0b882022-12-22T01:10:24ZengAOSISSouth African Journal of Business Management2078-55852078-59761989-09-0120316316710.4102/sajbm.v20i3.956675The gearing adjustment in inflation accounting: The financing sequence assumptionM. A. Van Hoepen0I. J. Lambrechts1F. J. Mostert2Touche Ross Netherlands/ Touche Ross InternationalDepartment of Business Economics, University of StellenboschDepartment of Business Economics, University of StellenboschThe application of a gearing adjustment in inflation accounting has always resulted in the problem of determining a financing sequence. A decision has to be taken whether certain categories of assets are financed with equity and/or loan capital. Financial theory of the last few decades quite convincingly revealed that there are no logical grounds for relating certain assets to certain liabilities and/or equity. This proportional financing assumption is discussed and illustrated in the article for the so-called Van der Schroeff-system of income demermination in order to point out the sensitivity and financial consequences of this assumption for financial decision making. The assumption about the financing sequence does have a definite influence on the gearing adjustment. Further influences are on the income statement and the message given to shareholders and the investment public; the composition of the asset structure and consequently the risk composition of the assets; the composition of the financing structure and consequently the financial risk as portrayed by the balance sheet; and the marginal financing ratios needed to maintain the original gearing ratio.https://sajbm.org/index.php/sajbm/article/view/956 |
| spellingShingle | M. A. Van Hoepen I. J. Lambrechts F. J. Mostert The gearing adjustment in inflation accounting: The financing sequence assumption South African Journal of Business Management |
| title | The gearing adjustment in inflation accounting: The financing sequence assumption |
| title_full | The gearing adjustment in inflation accounting: The financing sequence assumption |
| title_fullStr | The gearing adjustment in inflation accounting: The financing sequence assumption |
| title_full_unstemmed | The gearing adjustment in inflation accounting: The financing sequence assumption |
| title_short | The gearing adjustment in inflation accounting: The financing sequence assumption |
| title_sort | gearing adjustment in inflation accounting the financing sequence assumption |
| url | https://sajbm.org/index.php/sajbm/article/view/956 |
| work_keys_str_mv | AT mavanhoepen thegearingadjustmentininflationaccountingthefinancingsequenceassumption AT ijlambrechts thegearingadjustmentininflationaccountingthefinancingsequenceassumption AT fjmostert thegearingadjustmentininflationaccountingthefinancingsequenceassumption AT mavanhoepen gearingadjustmentininflationaccountingthefinancingsequenceassumption AT ijlambrechts gearingadjustmentininflationaccountingthefinancingsequenceassumption AT fjmostert gearingadjustmentininflationaccountingthefinancingsequenceassumption |