When the accountant attempts to deal with inflation in financial statements he encounters two quite separate problems. General price level adjusted (GPLA) statements address the first—the changing general purchasing power of the monetary unit of account. Current value accounting methods (such as replacement cost) address the second—the significant differences between current and historical costs of specific balance sheet items.

Although GPLA accounting accommodates changes in the purchasing power of principal of debt, it ignores both the current market price of the debt and current interest rates. In theory, replacement cost accounting reflects long-term debt in terms of both current market value and current interest cost. But in practice, replacement cost accounting ignores debt, focusing exclusively on assets.

The impact of inflation on liability accounting is likely to be substantial. Compared to the numbers required for reporting changes in the market value of assets, however, the numbers required for reporting debt are readily ascertainable. Thus their omission in replacement cost accounting is not only surprising, but also unnecessary.