The Impact Of Inflation On Financial Report And Decision-Making In Business Organisation In Nigeria. (A Case Study Of Nigerian Bottling Company Plc)

Project and Seminar material for Accountancy

Project and Seminar material for Accountancy


This work is on the impact of inflation on financial report and decision making in business corporations in Nigeria. From the study the following were observed.

  1. Inflation has a greater impact to play in the financial report and decision making in the business of private and public companies.
  2. In my findings, I observed that managers could not do without checking the price of goods, in the market and also the money value.
  3. Inflation helps the managers to minimize cost and also plays an important role to profit making of the company.

The chapter one focused on the introductory aspect of the research work. While the second chapter focused on the theoretical aspect i.e. the literature reviews.

The chapter three of this work concentrated on the model specification, that is what we have research design, area of study, population of study, sampling techniques and sample size, instrument of data collection, validation of this instruments, reliability of the instrument, methods of data collection and finally the analysis of data.

In chapter four, the research analyzed the empirical result using tables and percentages, the hypothesis were also tested using chi-square. The chi-square was used because of its general acceptability in research work.

Table Of Contents

Preliminary Page(s)

  • Title Page
  • Approval Page
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of Contents

Chapter One

1.0 Introduction

  • 1.1 Background of the Study
  • 1.2 Statement of the Study
  • 1.3 Purpose of the Study
  • 1.4 Research Questions
  • 1.5 Statement of the hypothesis
  • 1.6 Significance of the Study
  • 1.7 Scope of the Study
  • 1.8 Limitation of the Study
  • 1.9 Definitions of Terms

Chapter Two

2.0 Literature Review

  • 2.1 Introduction
  • 2.2 Inflation and Measurement in Accounting
  • 2.3 The stable Monitoring Unit Assumption
  • 2.4 Distortion of Accounting Reports During Inflation
  • 2.5 Ways in which inflation influence Accounting Statement
  • 2.6 Inflation and Decision Making in Organization
  • 2.7 Inflation and the various Decisions
  • 2.8 Financial Statement Adjustment

Chapter Three

3.0 Research Design and Methodology

  • 3.1 Introduction
  • 3.2 Research Design
  • 3.3 Sources/Methods of Data Collection
  • 3.4 Research Population Study
  • 3.5 Instrument for Data collection
  • 3.6 Validation of the Instrument
  • 3.7 Methods of Data collection
  • 3.8 Method of Data analysis

Chapter Four

4.0 Presentation and Analysis of Data

  • 4.1 Introduction
  • 4.2 Presentation of Data
  • 4.3 Data Analysis
  • 4.4 Testing of Hypothesis
  • 4.4 Interpretation of Result(s)

Chapter Five

5.0 Summary, Conclusion and Recommendations

  • 5.1 Summary of Findings
  • 5.2 Conclusion
  • 5.3 Recommendations
  • Bibliography
  • Appendix

Chapter One

1.0 Introduction

In the nineteenth century, little or nothing was heard about inflation. Consequently, not much concern about the concept but since this twenty-first century, inflation becomes accustomed and widely known to have great impacts on various aspects of life activities which include accounting practices.

Inflation has been known to cause a number of social, economical and political effects. Some of these effects are inequalities in price of goods and services, social strains, fall in standard of living and investment decreases.

In the same vein, it also affects the economic growth, domestic investment and savings together with exportation. Considering the in-depth effects of the concept, some well meaningful Nigerian researchers have explored such areas as embracing causes, rates measurement and control of inflation in Nigeria.

The impact of inflation on accounting reports and business decision of companies is one of the greatest constraints Nigerians re facing. Accounting problem in many parts of the world including Nigeria affects all aspects of business concern. Accounting reports during inflation is said to be distorted.

There is no doubt that some of the business failures in Nigeria during inflation of the recent years have resulted in many constraints due to irrational decisions made based on inflation distorted financial reports of such companies. Moreover, the inflationary nature of recent past years, federal government budget heralds a general rise in the prices of goods and services. Therefore, it is to avoid future business failures that this research project is embarked on.

It is crystal clear however, that for any business cooperation to survive, it must have apartment and precise information at its disposal. But how can corporation have this information when the financial reports itself are distorted by inflation? This is one of the purposes of this research to provide management in Nigerian companies the effective means and ways of processing and reporting financial information, which is current and meaningful during inflation. Although no accounting rules in Nigeria have been provided as to that effect which means that the knowledge will be of immense help in making appropriate decisions.

The entire work lies on investigations on the effect of inflation on such decision-making as related to the wages, prices, dividends and capital to earn future profits like taxation and investment decision of the business corporation as they relate to reported financial statement during inflation.

The research is not meant to include research on the nature, causes, rate and the instruments of combating or controlling inflation in Nigeria. And as regards to the organization which is included in the study. Only the profit oriented corporation which was registered and also situated in any of the branches of Nigerian Bottling Company (Coca-Cola) lies the purpose of this research work.

It is however, essential to note that this project has no intention whatsoever to dispute or condemn the conventional accounting procedures but rather to argument on them.

1.1 Background Of The Study

This research work is based on the problem of inflation and how it affects companies in their financial report and decision-making in business. This study is based mostly to educate managers of Nigerian Bottling Company (Coca-Cola) on how to maximize profit to make ends meet in their various branches.

In the fifties, inflation was not known as a major phenomenon in Nigeria as likely to cause distortions in conventional accounting reports. The financial reports then were prepared without giving consideration to the changes in the value of money that was when stable monetary unit assumption in accounting was appropriately applied in the preparation of financial reports. But since the 60’s, inflation has become a major problem having a pervasive effect on our ability to purchase needed goods and services in order to make rational decisions using the conventional accounting reports.

There have been evidences that most business failures in the country were as result of irrational business decisions made by managers based on inflationary distorted profit of such business unit. And yet, there are concrete signals that so called inflationary 2003, Federal Government Budget showed great failure in business.

This research has foreseen and therefore considered it necessary to carryout this research to help at least in reducing the rate of contemporary business corporation in country by bringing to the knowledge of company managers and all those involved in decision-making, the distortions that mark the conventional accounting reports during inflation problem, the way and means of processing and displaying accounting inflation so that things will be able to effectively tackle the inflation of the years to come.

Brief History Of Nigerian Bottling Co. Plc (Coca-Cola)

The best known taste in the world of an ice-cold bottle is coca-cola was produced on 8th May, 1886 in Atlanta Georgia, USA by Dr. John Styth Pemberton, a Pharmacist.

The name coca-cola was given by Frank M.Robinson, Dr. Pemberton’s partner and book keepers. He also designed following script that distinguishes the famous trademark, coca-cola contents remained secret as they have been for over 100 years.

The formula known as MERCHANDISE 7X is kept in a special security vault in a bank in the United States.
In 1953, Coca-Cola came to Nigeria when the Nigerian Bottling Company PlC opened its first branch in Lagos. There are other soft drinks produced by coca-cola. They are as yellow, fanta soda, fanta Chapman, sprite, krest Bitter Lemon, Schweppes Bitter Lemon, Schweppes soda and tonic. Nigerians consumed not less than 8,000,000 bottles everyday. The company has employed about 10,000 staffs.

Nigerian Bottling Company PLC is the largest manufacturer of carbon dioxide (CO2) gas used for making soft drink. The company has the largest privately owned fleet of delivery trucks, pick ups and cars in Nigeria all working to bring delicious coca-cola to consumers’ door steps.

Besides, the company has been putting something back into the society as reward for patronizing its products mainly through philanthropic activities, for example the company is a leader in the crusade for environmental production.

It is also a major sponsor of sporting events. The company is also conscious of its social responsibilities for this reason, it sponsors activities such as football, local and international competitions, table tennis-the Nigerian championship. The conservation movement activities of the disabled and many commercial events and projects.

1.2 Statement Of The Problem

Inflation as many economist and financial experts are aware of the effect of accounting reports on business organizations. Inflation has clouded ghost sources of profits that many managers or experts even the most alert financial statement analyst. The problem is the fact that reverse is almost, always stated in current Naira, while plant and equipment and inventory whose worth may well be two or three times their original values now that inflation exists.

Furthermore, the effects of inflation, thus hidden from the decision maker by convention of accounting procedures makes it difficult for managers to draw appropriate conclusions from financial data. This perhaps leads to the modified failure of contemporary business organization in Nigeria in recent years, which results as a consequence of inflation on companies. Thus, the first question that really occurs to mind is:

  1. Does inflation actually cause distortion on conventional financial reports in Business Organization?
  2. The second is, do companies take financial reports at their face value and ignore effects of changes in money values when making decisions?
  3. Lastly, would the conventional financial reports adjusted, provide better accounting information for the decision making in business organisation?

1.3 Purpose Of The Study

The purpose of this study is to promote the awareness of business managers of the dangers inflation might pose if proper decision is not taken before the management and auditors of the company.
To find out if adjusted financial reports could be better for decision making than the conventional financial reports.

Financially, based on the findings, the researcher recommend to the manager/management, levels, the ways and means of auditing relevant books of accounts in the company and a better means of current and meaningful.

The managers of the various corporations in Nigeria like their colleagues in other parts of the world required inflation that is current and meaningful and devoid of distortions when making decisions. But unfortunately, most of the information the manager/ management needs are not satisfied and reliable financial reports, therefore management is left in the problematic of how to obtain relevant and precise information to make effective decision during inflationary period when the conventional reports itself are embodied in illusion.

Many corporate managers due to ignorance do not seem to appreciate the embodiment of illusion, which has the potential which make their decision ineffective.

1.4 Research Questions

In order to find solution to the research work, the following questions are laid down by the researcher. The questions are as follows:

  1. Will adjusted financial statement provide better information for decision making during inflation than conventional financial reports?
  2. How will conventional financial reports adjusted provide better accounting information for decision making of a company?
  3. Do companies take financial reports at their face value and ignore the effects of changes in monetary values when making decision?

1.5 Statement Of Hypothesis

To find solution to the research problem, we project the following hypotheses which are to be investigated and the validity period established.

  1. HO1: Corporate companies do not take financial report at their face value and they do not ignore the effects of changes in money values when making decisions.
    Hi1: Corporations take financial reports at their face value and ignore the effects of changes in money values when making decisions.
  2. HO2: Adjusted financial statement does not provides better information for decision making during inflation than conventional financial reports.
    Hi2: Adjusted financial statement provides better information for decision making during inflation than conventional financial reports during available for the research project and thus; a small percentage coordination with the company.

1.6 Significance Of The Study

The efforts of inflation on financial report and decision making in business corporation in Nigeria cannot be over emphasized, this study reveals the drawback companies might face if proper adjustment is not taken during the increase in prices of goods and services.

This research is of significance in the following fields. In the fields of academic, students on how to tackle inflation constraints. Students in the discipline of accountancy will also have a great priviledge of how to recruit and select employees of companies to the best of their satisfaction with the necessary different test, it also helps to impact more ideology to most students that are anticipating to be personnel managers of professional auditors.

To the organization, it enables them to enumerate steps that an applicant will pass through both in medicals test and the dexterity test before being effectively and efficiently selected.

1.7 Scope Of The Study

The research was carried out on three businesses, breweries and there are bound to be delimitation in the process of carrying out the research work. These studies carried out by the student, there are financial and time constraints.

This research is aimed at promoting manager on their effort to reduce the clouding effect of inflation on converting information and knowing the consequence of this failures to companies before time. This research is based on finding the control measures to reduce inflation, which might cause distortion on financial report and decision making in business corporations.

Finally, this work makes for accurate accountability of auditors report in the company in order to give current and precise information about the work in the company which has already been audited.

1.8 Limitation Of The Study

During the course of writing this project the researcher encountered some problems or constraints which have gone a long way to affect the successful execution of this study. Those constraints are enumerated here under;

  1. There was lack of finance for running cost and other financial commitment.
  2. There was also lack of adequate data and information regarding the system in Nigerian Bottling Company PLC (Coca-Cola).
  3. Transportation also limits this study because transportations were boarded by the researcher which frustrated his programme.

1.9 Definition Of Terms

The definitions here are meant to give vivid understanding of this study, there are some terms that are relevance to this study which needs to be defined. These terms includes the following;


This is a general rise in the prices of goods and services in an economy.

Financial Report:

Information provisions in the form of income statement and balance sheet must be vital during inflation.

Decision Making:

Choosing or selecting from among alternatives by managers of business corporations in Nigeria.

Business Corporation:

Incorporated entities with the profit making as their main goal.

People Profit:

Fictitious profit on book, which results from recording revenue on current basis and cost on historical basis.

General Price Index:

A ration showing the rate of price changes in relation to all items in the economy.’

Price Level Adjusted Profit:

This is profit estimated by applying the conventional accounting profit, the appropriate index so as to make allowance for the impact of price changes in the value of money and a rise in the money value of the national income greater than the rise in its real value.

As frequently use description of inflation such definitions has one characteristics in common, they all involve a change in the relationship between money and goods to general within the economy.

Chapter Five

5.0 Summary, Conclusion And Recommendations

The study is on the impact of inflation on financial report and decision making in Business Corporation. The company chosen for the study is the Nigerian Bottling Company Plc (C0ca-Cola).

5.1 Summary Of Findings

From the interview held with the top and middle managers and accountants of various departments in Nigerian Bottling Company Plc, Aba, the under enumerated facts were found out by the researcher.

  1. The large branch in the company (e.g. Headquarter) in Lagos do acknowledge that inflation of 10 percent and above, as it is now does affect their performance in terms of profit making. The profit margin is reduced by the increased cost of their inputs.
  2. This large branch still prepares their financial statement on historical cost basis but take care of the impact of inflation by adjusting for it in their annual budgets. However, other prepares private inflation adjusted financial statement apart from the historical cost based one. This they claim they do because the recognized that the profit reported on the historical cost basis during inflation is overstated.
  3. Historical cost accounts are accepted as reliable by 100% of the respondents in so far as the rate of inflation is below 10 percent. But about the same 90% of the respondents (mainly from large branch) are suspicious about the reliability of the information in the economy has harsh up to 10% and above as it is in Nigeria since 2002.
  4. In making dividend payment decision, some managers (especially from newly established branches) do believe that corporate reports state during inflation and therefore, distribute dividend from what they call profit only to changing of the business.
  5. Many companies have been indulging in under fixing prices of their products simply by strictly adopting first-in-first-out stock valuation in period of inflation which means that the product cost are understated and hence the overstatement of their profit.
  6. Corporate tax is calculated on overstated profit of branch since the company’s income taxes are computed on historical cost profits. Large branch understand this fact and are actively in need of establishment of certain laws from the Nigeria government that would provide correction for this unjustifiable over-taxation of their profits.

5.2 Conclusion

Accounting information plays a crucial role in the development and existence of corporations in any economy. For this fact to hold, the information provided by accounting must be that which is current, meaningful and devoid of distortions. But research has revealed that accounting information is not actually devoid of distortion during inflation periods. This has been the general concern of accountants, managers and all shareholders in the companies all over the world. The researcher believes that the distortory effect of inflation on the information provided to decision makers in the state has played some part and is likely to play more on the business corporation in which they are making decision.

The researcher therefore, believes that the improvement in this financial information will in turn improve the various management decisions, which are therefore necessary for the continuing existence and healthy position of the companies. As a future area of research, the researcher suggests further study should be done in this area so as to include the external users and which sector of the economy, banking sector, agricultural sector etc. is most affected by this distortionary effect of inflation on the financial reports.

5.3 Recommendations

In view of the following and the implications, the following recommendations are essential in order to at least reduce the clouding effect of inflation on conventional accounting information and consequently failure of companies in Nigeria.

  1. The federal and state governments should make laws in view of income taxes of companies during inflation so as to avoid intended by law. This can be done either by setting up such decree termed “Inflation income tax decree/act (IITD) required requested companies to be taxed on inflation adjusted income report or making the tax rates do flexible so that during inflation period of 10 percent and above, corporate tax rate will be between 30 percent and 35 percent and when inflationary rate is below 10 percent, companies are taxed at the current rate of 40 percent or any other rate government may deem appropriate depending on the other prevalent economic objectives of the government.
  2. Since the researcher so carried out reveal that the smaller and newly companies are more vulnerable to the risk of making erroneous decision and eroding their capital base during inflation, research should be carried out to discover the quality of advises given to them by the consultant firms to guide them in their position during inflationary periods.
  3. The decision makers or managers should realize that the profit reported in the income statement during the period of inflation is however not a function of managerial efficiency and effectiveness alone, but depends also on the level of inflation or rising prices of their products and therefore should be extra careful while using it as a basis of performance evaluation, promotions and payment of bonuses to their subordinates.
  4. Comparing where first-in-first-out stock valuation are strictly used and the depreciation of fixed assets is strongly maintained on historical cost basis should be careful when using them for their values. They produce overstatement of the result of income statement during inflation. In case of stock valuation, LIFO (Last-in-first-out) is more appropriate since it changes current cost against current revenue and thus, eliminates the adverse effect of inflation. On the government side, they should consider replacement cost of assets as a basis for computing depreciations rather than historical cost basis for computing depreciation.

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