I have a quandry. If you are presented with quarterly sales revenue results and you are asked to adjust these to take a/c of price rises based on an index, due you just inflate results relative to base period, or discount back to base period, to give true value of raw data?
EG:
Base Index: 151.0
Qtr 1 Sales 125,000 - Index 160.1 Qtr 2 Sales 121,000 - Index 162.5 Qtr 3 Sales 141,000 - Index 165.1 Qtr 4 Sales 150,000 - Index 163.0
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I don't really understand how you derived the numbers you listed. I am working to a question the nub of which I have explained. It gave the base index and all the other indexes per qtr. I thought I should discount or inflate by relating each qtr's sales and the qtr's index relative [in all cases] to the base index. If i read you correct, you seem to be discounting each qtr's sales and the qtr's index relative to the previous qtr's index. I think the aim is simply to adjust revenues to account for price rises. Could you please confirm how you got your numbers, if you don't mind. Cheers
I got the same answer as Shaun but not sure if it's correct or not. One of those types of questions you get in an exam that you will doubtless never come across in reality!!!
I guess we both took this route to getting the answers: divide the qtr sales by the index and multiply by the new index, ie 125000/160.1 multiplied by 151 equals 117895.
Lets imagine the 151 as £1.51. If you track the base index back far enough you will get to a position where the base index was £1.00.
What we are doing is taking inflation into account so what would have cost £1.00 in say first quarter of 2001 is worth £1.51 in say the first quarter of 2007.
Go forwards a couple of years and what would have cost £1.51 in the first quarter of 2007 would now cost :
£1.601 in Qtr 1 of 2009 £1.625 in Qtr 2 of 2009 £1.651 in Qtr 3 of 2009 £1.630 in Qtr 4 of 2009
Now we may have figures in the first quarter of 2007 that we need to compare to the figures in 2009. We cannot directly compare the figures as inflation has had an effect on the value of the £ so we need to rebase the figures.
For each of the values quoted we need to regress the value to what it would have been had the £ been worth the equivalent of £1.51 rather than £1.601, £1.625, £1.651 or £1.630.
To do that (just take the first one as an example).
125000 / 160.1 * 151 = £117,895.07
So, £125,000 in the first quarter of 2009 is the equivalent of £117,895 in the first quarter of 2007.
By calculating these out you are able to more accurately graph an entities progress or lack of it. You'll find this particularly useful for time series analysis.
If your using discount tables your going to get slightly different results due to the inherent inaccuracy of the discount and annuities table method.
Hope that this helps,
Shaun.
-- Edited by Shamus on Thursday 18th of February 2010 03:31:58 PM
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Pretty sure that we're right but it really all depends on the rest of the question I think.
Is it the case that what is really required is that everything is rebased to current so 163.0 becomes the base amount? Or is it as we assume that we need to regress the figures back to when the base value was 151.
All we can answer though is the questions that we are asked and both us us came to the same conclusion on this one.
chat in a bit,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
