Capital Maintenance In A Period Of Inflation

Capital Maintenance In A Period Of Inflation

Chapter One

Preface

The word affectation isn’t new miracle; it has been endured by utmost countries in the world at some stage in their history. Bare looking at this statement bones mind will really, run to developing countries. But it’s in history that indeed the UNITED KINGDOM in 1974 when they could no longer sit back and watch affectation run them set up “ The affectation Account commission ” with Francis Sandilands as president to look into the problem. Indeed the Almighty UNITED countries OF AMERICA went through it eventually in the sixties before they come to they present profitable stability. So, one won’t be surprised when countries like ours and some other like the Asian countries and indeed Latin American Countries are mentioned as suffering from this CANKER WORM called affectation.

There are so numerous delineations. Solow( 1979) for case, sees affectation as going on when one needs further and further plutocrat to buy some representative pack of goods and services, or a sustained fall in the purchasing power of plutocrat. It’s a sustained rising trend in the general price position or put in another way, it’s a high and patient rise in the price position.

Affectation is a rise in the general position( or average position of prices) of all goods and services. The general price position therefore varies equally with the purchasing power of a unit of plutocrat( similar as the naira). For illustration, if prices double, copping power diminishments by one-half.However, copping power doubles, If prices halve. thus, affectation is also a reduction in the purchasing power of a unit of plutocrat. The contrary of affectation is deflation.

Types Of Inflation

a) Demand – pull affectation This types of affectation take place when aggregate demand is rising while the available force of goods is getting decreasingly limited. It’s convinced by inordinate demand not matched with increase in force.

b) Dachas – drive affectation This occurs when prices increase because factor payments to one or further groups of resource possessors rise faster than productivity or specialized effectiveness. Typical forms of cost – drive inflationi are “ pay envelope- drive ” “ profit- drive ”, and “ commodity ”.

c) Hyper – affectation Hyper- affectation occurs when the price position rises at a veritably rapid-fire rate.

CAUSES AND CONTROL OF INFLATION IN NIGERIA CAUSES

There are several causes of affectation in Nigeria.

1. inordinate plutocrat force caused by ineffective financial and financial policy.

2. Fall in the force of goods and services, especially agrarian product causing demand to rise and price to rise as well.

3. Budget deficiency or government expenditure programmers is a major cause of affectation in developing nations. Too important expenditure by government can beget affectation.

4. Too important importation of goods and services can beget affectation especially in developing nations.

5. An increase in population can put further pressure on the little goods and services thereby prices will rise.

6. The conditioning of the mediator in the distribution of goods and services can also beget severe affectation in our frugality.

7. inordinate demand by consumers and advanced product cost can also beget inflationi.

8. Monopolistic practices with respect to product, importation and distribution of certain essential goods can beget affectation.

9. Increase in stipend and hires and competitive attempts by colorful profitable and social groups to increase their share of the public cutlet, can also beget affectation.

CONTROL

1. The setting of price control board by the government of fix outside prices changed for certain goods is one way of controlling affectation but experience shows that this system doesn’t work.

2. Monetary policy is another way to control inflationi. It involves the use of traditional financial instruments to reduce the volume of plutocrat in increase in the bank or reduction rate, increase in the liquidity rate, us of open request operation( OMO) special directivesetc.

3. financial policy This entails an increase in particular income duty reduction in government expenditure.

4. Total ban on the importation of certain particulars may help to control affectation especially when similar affectation is imported.

5. The product of further goods and services in an frugality may also help to control affectation.

6. The control of stipend increases or pay envelope snap will also help to control inflationi.

7. There’s need to catch the entire distribution networks to control inflationi in an frugality.

Affectation IN NIGERIA

One of the major causes of affectation in Nigeria has been the colorful government programs to stimate a fast rate of profitable growth and development since independence. In recent times, still, specific programs like SAP external debt programs, programs on subventions on petroleum product and toxin, programs of privatization and commercialization, programs on trade liberalization, and interest rate deregulation, and others are responsible for the inflationary trend in our frugality.

Before the SAP, affectation in Nigerian was caused primarily by using world import price and price and falling affair. These are major external factor Contributing to Nigeria affectation. later, domestic or internal causes like adding government expenditure, rising domestic credit creation and force backups similar as deficit of raw accoutrements and spare corridor worsened the situation. There’s need, thus, for financial policy reform, exchange rate reform, effective price and pay envelope policy and financial policy reform, to break the problem of inflationi in Nigeria.

But for the purpose of this exploration, affectation according to Samuelso( 1976) is a time of generally rising prices for goods and factors of product, rising prices for chuck , buses , haircuts, rising stipend, rents etc. Affectation has assumed a great deal of political social and profitable significance that goes on with it. The political and social effect a part, the profitable impact can not be over emphasized. One of the most disturbing aspects of this to companies and their directors is its affect on capital conservation. By companies we mean those intimately possessed – those whose capital must have been sources through the plutocrat request.

CAPITAL!!! This one name that has failed to agree with the word Affectation right from the world go. While the directors are busy managing and trying their stylish to maintain the capital entrusted in them, the affectation on its part is busy defying and eroding the value of the capital being handled and sub squally increased by director. What an opposition?

One academy of study has argued in vehemence of affectation grounded on its benefits. But they were proved wrong grounded on the long run effect of similar advantages. This could be illustrated therefore

Supposing a company with a capital base of N4 million incurs expenditure of say-so N 200,000 to make a profit of N 50,000 after duty. Again, supposing in the coming two times more due to affectation their profit rose to N million surely, workers hires will have to be increased or they would seek for the increase by force since every other factors of products price has increased. Like wise violent or tips. The government won’t be left out in their share of the “ public cutlet ” by the time the company tries to meet all these demands of all these interest groups.

They may be left with nothing to their credit. Meanwhile the asset, i.e. machines shops, structuresetc. have in one way or the other won out. And the company might not be suitable to replace them or indeed repair them despite the huge profit recorded. This is the handwork of affectation. At this juncture, if he director involved doesn’t take time, he might be in deep shit. And this is where the problem lies. No wonder Nikitin( 1980) states that “ utmost people regard affectation as being associated with undesirable effect and it has counteraccusations for all persons and institution who conduct their profitable conditioning by means of financial unit ”.

The question of maintaining capital in a period of affectation in manufacturing companies has come applicable, substantially in the recent history. Capital may simply be defined as “ plutocrat which is invested ” from a lay mans point of view. But in the real sense, it encompassed the working capital, real means like erecting machines shops, and indeed vehicles used in the business. It’s still disturbing that indeed the accountancy profession haven’t supposed up till now. Hence the experimenter has to probe capital conservation in a period of Affectation with “ NIGERIA BOTTLING COMPANY PLC OWERRI ” makers of COCA- COLA and other soft drinks. The experimenter is interested in chancing out how this transnational company which is largely equipped and mechanized has been suitable to remain at the top through out all this affectation any period from the 1970s, and at the same time maintaining its capital( Nigerian situation being as critical as it’s with the value of Naira disapproving everyday, now at the rate of about N100.00 to$1.00 as against some 85- 7 pence to$1.00 it used to be in the 60s)

For convenience, this exploration is organize into five major chapters chapter one deals with general over fought of the study, chapter two centers on literature review it the work of former authors on the subject matter of affectation and capital conservation, chapter three treats the exploration procedures embrace four is devoted to sources of data and analysis as well as the thesis testing.

Eventually, chapter five deals with summary of the work, conclusion and recommendation.

STATEMENT OF THE PROBLEM

Capital being the life line of an association has been defined by numerous authors from the perspective of their discipline, but a business profit making association( manufacturing concern in this case), it includes their working the liquid cash, manufacturing. And sanctioned structures, machines, reserves, loan capital and indeed partake capital equity. Growth of this chapter should be the ultimate end of both the directors and the possessors of the business, and indeed the creditors and investors. But this end isn’t easy to come by indeed in a small scale assiduity to talk of a multination manufacturing company like “ Nigeria bottling company ” especially during inflationi.

effect to the below statement, the figure problems of this exploration are-

1. Companies have difficulties in pooling the acceptable volume of capital from different sources.

2. During affectation, the companies also have difficulties in conservation of real asset( machines, outfit’s structures etc) in terms of problem of choosing an acceptable deprecation system.

3. Companies encounter some difficulties in dimension of profit and conservation of profit and conservation of reserve to the tune of affectation.

4. The government taxation programs during affectation also have some adverse effect on the manufacturing companies.

ideal AND PURPOSE OF STUDY

It’s veritably material and clear that no companies director’s and directors will pilot the affairs of their companies for a whole account period only to pay their debts and tips from their capital. It’s veritably unheard if at least the possessors( share holders) won’t find it funny. This fact thus necessitates the significance and applicability of the subject matter.

The ideal of this study thus is to

1. Find out how manufacturing companies gather their needed volume of capital from different sources during affectation( i.e. internal and external sources) and the impact of this affectation on the different cost of the different sources of capital.