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I understand that inflation would cause a fall in the real value of the ap balance but I don’t understand why it would cause a rise in the real value of ar. My opinion is that the purchasing power of the ar would decrease as well. Please explain for the ar.
After thinking about what you have written for some time, I have decided that by ar and ap you mean receivables and payables??
(I hope you don’t call them ar and ap in the exam – the marker will have no idea what you mean!)Assuming that you do mean the above, then I agree with you 🙂
John, Thanks for the advice and for answering. I was confused as I read that in the BPP text it would cause a rise in receivables value.
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