A is corrent. Per ASC Topic 255, the dollar amounts of monetary assets and liabilities are fixed or determinable without reference to future prices or specific goods or services. If the general price level changes, a purchasing power gain (loss) may occur on monetary items. A monetary liability held constant during a period of inflation creates a purchasing power gain because the liability could be paid using a fixed amount of cash which is worth less than the cash borrowed earlier.
B is incorrect. The dollar amount of nonmonetary liabilities is not fixed; and, therefore, changes in the general price level will not result in a purchasing power gain (loss).
C is incorrect. Per ASC Topic 255, the dollar amounts of monetary assets and liabilities are fixed or determinable without reference to future prices or specific goods or services. If the general price level changes, a purchasing power gain (loss) may occur on monetary items. A monetary liability held constant during a period of inflation creates a purchasing power gain because the liability could be paid using a fixed amount of cash which is worth less than the cash borrowed earlier.
D is incorrect. The dollar amount of nonmonetary assets is not fixed; and, therefore, changes in the general price level will not result in a purchasing power gain (loss).
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