Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/218032 
Year of Publication: 
1989
Citation: 
[Journal:] South African Journal of Business Management [ISSN:] 2078-5976 [Volume:] 20 [Issue:] 3 [Publisher:] African Online Scientific Information Systems (AOSIS) [Place:] Cape Town [Year:] 1989 [Pages:] 163-167
Publisher: 
African Online Scientific Information Systems (AOSIS), Cape Town
Abstract: 
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.
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Creative Commons License: 
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Document Type: 
Article

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