Title: Effect Of Inflation On Capital Maintenance
Authors: ODUTOR O. SOLOMON, EHIEDU, Victor C Ph.D
Volume: 9
Issue: 6
Pages: 200-209
Publication Date: 2025/06/28
Abstract:
This study examines the effect of inflation on capital maintenance among Nigerian firms, with emphasis on financial and physical capital sustainability. Using a descriptive survey design, data were collected from 278 accounting and finance professionals across banking, manufacturing, oil and gas, and telecommunications sectors. The study employed both descriptive and inferential statistics, including Pearson correlation and Chi-square tests, to analyze the impact of inflation and evaluate the adequacy of existing accounting practices. Findings revealed that inflation significantly undermines both financial and physical capital maintenance by distorting reported profits, inflating asset replacement costs, and eroding reinvestment capacity. Additionally, the study found that current accounting practices in Nigeria, particularly the reliance on historical cost accounting, are inadequate in mitigating the effects of inflation. The study concludes that inflation-adjusted accounting frameworks are essential for accurate financial reporting and long-term capital preservation. It recommends the adoption of international inflation accounting standards (e.g., IAS 29), enhanced professional training, and regulatory reforms to improve financial reporting practices in inflationary environments.