From: Philip Dunn (pscumnud@DIRCON.CO.UK)
Date: Fri Jun 11 2004 - 05:54:40 EDT
Quoting ajit sinha <sinha_a99@YAHOO.COM>: > Phil Dunn wrote: > > Hi Ajit > > > > Of course, rising costs are a concern to a business > > and its bankers > > -- but only if the costs cannot be passed on to the > > customers. Here > > we have a case where we assume costs can always be > > recovered and > > where there is a historical cost profit and a > > replacement cost loss. > > In every year loans can be repaid with interest with > > a bit left over > > for the proprietor. This is a rock solid business > > proposition. > > Everybody is in the money (except the workers who > > are assumed to live > > on air). There is no inflation and so the value of > > money is > > unchanged. > > > > Thanks, Ajit, you have provided a refutation of > > replacement cost accounting. > > > > Phil > ___________________ > > Not so fast Phil! You forget that after every round of > production I have to come to you for a larger amount > of money. So, no matter how rich you are, sooner or > later you will run out of money and I will have to > close my factory. And if you have power to print > money, you will create hyper inflation just to keep me > and TSS in business. Cheers, ajit sinha > > Hi Ajit How is the above relevant? There is no need to suppose the price rises go on indefinitely. Let them stop before they contribute more than negligibly to inflation. The upshot will be that profit will have been made where replacement cost profit is negative. Phil Philip Dunn
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