The Impact of Inflation on the Valuation of Fixed Assets under the Historical Cost Principle: An Applied Study on Al-Khatem Telecommunications CompanyTop of Form

Abstract

In an economic environment characterized by high inflation rates, the valuation of fixed assets is directly affected when relying on the historical cost principle. The book value of assets may fall below their actual economic value, impacting annual depreciation and net accounting profit. This research highlights the importance of analyzing the gap between the historical value and the adjusted value of fixed assets to ensure accurate financial information that supports sound accounting and management decisions, particularly in the telecommunications sector, which relies on large and sophisticated assets. In practice, the fixed assets of Al-Khatim Telecommunications Company were estimated based on total assets and telecommunications sector ratios. Annual depreciation was then calculated according to International Standard on Average (ISA) 16. Following this, the historical value of the assets was adjusted for the Iraqi inflation rate, and the adjusted depreciation was recalculated. The impact of this adjustment on net accounting profit was then analyzed, and the results were presented in explanatory tables and charts. The results showed that inflation leads to an increase in the adjusted value of fixed assets and a rise in annual depreciation expense, thus reducing net accounting profit. This confirms a direct relationship between the inflation rate and the economic value of assets, highlighting the need to adopt international accounting standards and periodically adjust asset values ​​to ensure the accuracy of financial information and the soundness of investment and management decisions.