Advantages And Disadvantages Of Deflation

Business , Education
Positive Impacts, Benefits Or Advantages Of Deflation

The main advantages of deflation can be expressed as follows:

1. Increase In Purchasing Power

Negative inflation or deflation increases the value of money. So, purchasing power increases and price of goods and services decreases.

2. Lower Monthly Budget

As we know that deflation causes fall in the price of commodities, so people can satisfy their needs by spending less amount of money. So, it reduces the monthly budget which benefits middle and lower level consumers.

3. Increase In Saving

Due to fall in price of goods and less spending of money, people's saving will be increased at the period of deflation.

4. Higher Living Standard

Deflation helps to maintain better living standard because of lower expenditure and increase in saving.

5. Beneficial For Creditors

Deflation increases the real value of existing debt. So, creditors are benefited in this situation.

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6. Lower Business Costs

Deflation lowers the cost of business because of  decrease in the price of raw materials, machinery, technology and fixed assets. So, this period is appropriate for long-term investment.

Negative Impacts, Drawbacks Or Disadvantages Of Deflation

The major disadvantages of deflation can be described as follows:

1. Lower Consumer Spending

People may stop spending on luxurious and expensive products with the expectation of more decrease in price in the future. So deflation may encourage lower consumer spending which is not good for the economy.

2. Loss For Investors

At the time of deflation, investors and producers who hold large quantity of inventory suffer because of the decrease in the value of stock.

3. Increase Value Of Debt

As we know that deflation increases the value of debt, it makes difficult for the existing debtors to repay their loan.
advantages disadvantages of deflation
4. Possibility Of Unemployment

Business profit decreases because of decrease in the price which force the producers to stop production or reduce their production capacity. It may create unemployment problem.

5. Lower Economic Growth

Limited production, less consumer spending, increased value of debt and unemployment lead to lower economic growth and instability in the country.

Pros And Cons Of Deflation In Short

Pros:
- It lowers the monthly budget of because of decrease in the price of goods and services
- It helps to improve living standard of because of improved purchasing power
- It is beneficial for creditors because banks reduce the interest rate
- Suitable period for investment

Cons:
- It may lead to lower consumer spending
- It may create unemployment problem
- It negatively affect economic growth of the country
- It increases the real value of debt

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Advantages And Disadvantages Of Inflation

Business , Education
Benefits or Advantages Of Inflation

Positive impacts or advantages of inflation can be expressed as follows:

1. Beneficial For Investors

Price of commodities increases because of inflation. In this situation investors and producers can be benefited because of the increase in the value of stock.

2. Economic Growth

Producers try to increase their production capacity because of increase in the price of goods. It helps to utilize unused resources and labor. Inflation also helps to adjust relative price and wages. So, mild inflation is useful for the economic growth of the country.

3. Devaluation Of Debt

Value of debt will be decreased at the time of inflation because of the decrease in the value of money. So, debtors can repay their loan easily.

4. Easy Borrowing

Financial institutions get more money because of increase in wage and sufficient deposit. It makes easy for the people to borrow money from banks.

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5. Better Than Deflation

Deflation causes decease in the price of goods and services which stops the circulation of money. It increases the value of debt and discourages borrowings. So, inflation is far better than deflation.

Drawbacks Or Disadvantages Of Inflation

Negative effects or disadvantages of inflation can be expressed as follows:

1. Discourage Saving

Due to the decrease in the value of money, more money is required to satisfy the daily needs of people. It makes high cost of living. So, inflation discourages saving.

2. Decrease In Investment

Because of more expenditure and less saving, capital formation will be reduced which leads to decrease in investment.

3. Unemployment Problem

Due to inflation, cost of production become high. On the other hand, investment capacity is decreased. So, unemployment problem may arise because of decrease in production.
advantages disadvantages of inflation
4. Business Uncertainty

Inflation discourages foreign investment in the country. It also effects import and export business. So, it creates business uncertainty.

5. Economic Instability

Inflation is responsible for high cost of living, reduction in saving, investment and unemployment which may encourage black marketing, robbery, theft etc. So, it may create economic instability.

Pros And Cons Of Inflation In Short

Pros:
- It increases the value of stock
- It is useful for economic growth
- It becomes easy for debtors to repay loan
- It encourages maximum utilization of factors of production because of increase in the market price of products
-  It becomes easy to borrow money from financial institutions

Cons:
- It lowers saving because of high cost of living
- It discourages investment because of less saving
- It may create unemployment problem
- It brings economic instability in the country
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Limitations Of Accounting

Accounting , Finance
The main drawbacks or limitations of accounting can be highlighted as follows:

1. Ignores Non-monetary Items

Accounting records only monetary items (that can be measured in terms of money) and ignores non-monetary items (cannot be measured in terms of money) such as employee morale, loyalty, management efficiency etc. that play important role in success or failure of business.

2. Past Data

Generally, accounting uses past or historical financial data and information. It ignores some key factors like price level change and inflation. So, it may fail to show actual financial strength or weakness of the firm.
disadvantages of accounting
3. Frauds And Manipulation

Several accounting treatments are based on personal judgment and estimates. So, there exists a chance of manipulation of data and commitment of frauds.

4. Several Alternatives

There are different methods of stock valuation, depreciation, capital budgeting decision, amortization of assets etc.. Several alternatives may create complexity and confusion.

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5. Lack Of Secrecy

It is very difficult to maintain secrecy of accounting data and information because of several users.

6. Difficulty In International Trade

Different accounting standards and methods may create difficulty in international trade.
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Benefits Of Job Design

Education , Management
The main advantages of benefits of job design can be highlighted as follows:

1. Assists Human Resource Planning

Job design helps HR planning process by providing essential information about the job to be performed such as nature of job, qualification, skill and knowledge to complete the job etc.

2. Employee Motivation

Under job design, duties and responsibilities of employees are allocated according to their skill, capacity and knowledge which helps to motivate the employees in the organization.

3. Low Labor Turnover

Well designed job reduce labor turnover, conflict and absenteeism because of motivation and job satisfaction.
advantages job design

4. Goal Achievement

Job design helps to motivate the employees by reducing absenteeism frustration and stress which helps to achieve organizational goal more efficiently and effectively.

5. Quality Of Life

Job design creates favorable working condition in the organization. It also establishes better labor relationship between management and employees. So, it ensures better quality of life.

6. Less Supervision Cost

It is another benefit of proper job design. Duties and responsibilities are scientifically allocated according to the competency of the employees. So, less supervision is required for competent employees which reduce supervision cost.

7. Increased Productivity

Because of employee motivation, proper allocation of job, good working condition and job satisfaction, productivity and profitability can be increased.

8. Good Labor Relation

Job design promotes good relation among employees and between management and employees.
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Advantages And Disadvantages Of Variable Costing

Accounting , Business
Benefits / Merits Or Advantages Of Variable Costing

The main advantages of variable costing can be highlighted as follows:

1. Simplicity

Variable costing system is simple and easy method of cost accumulation than absorption costing approach.

2. Assists CPV Analysis

It provides essential data and information for cost volume profit (CPV) analysis.

3. Cost Separation

It clearly separates manufacturing costs into fixed costs and variable costs which simplifies production activities.

4. Relation With Standard Costing And Budgetary Control

Cost controlling techniques such as budgetary control and standard costing are related with variable costing.

5. Easy Profit Determination

It is very easy to determine profit under variable costing. Profit is determined on the basis of sales and it is not affected by inventory changes.

6. Planning And Controlling

Variable costing helps the management in cost control and profit planning.

Drawbacks / Limitations Or Disadvantages Of Variable Costing

The main disadvantages of variable costing system can be highlighted as follows:

1. Ignores Accounting Principles

This method of cost accumulation ignores generally accepted accounting principles (GAAP).

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2. Difficult To Separate Costs

It is very difficult to separate manufacturing overhead into variable costs and fixed costs.

advantages disadvantages variable costing

3. Understate Of Cost

This method understates the product cost by excluding fixed costs. So, fair cost of production cannot be determined.

4. Unsuitable

Variable costing is useful for internal reporting only and not suitable for external reporting.

Pros And Cons Of Variable Costing In Short

Pros:
- It is useful for cost volume profit analysis because it provides data about fixed cost, contribution margin etc.
- It is very helpful for management to make pricing decisions
- Profit can be determined easily in this method
- It simplifies production activities
- It provides cost data and information which is helpful for management control

Cons:
- It does not follow generally accepted accounting principles (GAAP)
- It is not suitable for making long-term pricing policy
- It becomes to separate manufacturing costs into fixed and variable costs
- Accurate cost of production cannot be determined because it excludes fixed costs
- It is not useful for external users such as investors, shareholders, public etc. because it is prepared for internal use only.
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Disadvantages Of Cash Flow Statement

Accounting , Finance
The major limitations or disadvantages of cash flow statement can be described as follows:

1. Limited Scope

Cash flow statement has limited scope because it cannot reveal net income from operation. 

2. No Complete Information

Cash flow statement cannot show the complete and up-to-date financial position of the firm.

3. Chance Of Inaccuracy

It may provide wrong information if there is wrong data in the balance sheet.

4. Ignores Accounting Concept

Cash flow statement ignores accrual concept of accounting.

True net income cannot be obtained because cash flow statement ignores non-cash items.

6. Historical Data

It uses historical financial data from balance sheet and income statement. So, it may not be suitable for future forecasting and financial planning.
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