This study was designed on effect of inflation on financial report and decision making in business cooperation in Owerri, Imo State. The aim was to determine extent to which inflationary trends affects financial reporting and business decisions of Nigerian Bottling Company Owerri. Inflation, be it creeping, cost push, wage push or profit push is a condition of unrelenting price spiral. The study adopted survey design and copies of questionnaire were administered to elicit data from sample size of (133) which was determined through simple random sampling technique. Chi-square (?2) statistical tool employed and hypotheses tested revealed that there is significant relationship between financial reports, business decision and inflation in Nigerian Bottling Company in Owerri. Therefore, it concludes and recommended that there should be a frantic effort to increase the expansionary policy mechanism as a tool to checkmate lending decision in the economy and for monetary and credit regulatory procedure to be maintained in line with real economic growth and financial market needs.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Inflation is a word that most people hear these days and virtually nobody would like to experience or come in contact with. Unfortunately it has come to stay with us. Clautier and Underdown (2011) described it as what hits the consumer”s pocket by eroding the purchasing power of the currency and sometimes acts as hidden tax. It reduces nation competitiveness in world markets and can have a general debilitating effect on almost all type of economic activities. When one thinks of inflation what comes to mind is the dynamic situation of persistent increase in the price level which results in the diminution of real purchasing power of naira at your disposal at any time. 

Inflation, be it creeping, cost push, wage push or profit push is a condition of unrelenting price spiral. It has been generally described as a situation of rising prices arising from too much money chasing too few goods and always results when the aggregate demand exceeds the aggregate supply of goods and services. It has the net effect of reducing the purchasing power of the monetary unit. When this reduction in the purchasing power of money is gradual as it was the case in the early 60s, the recipient of fixed income is not worried. However, when change in price is a run-away (hyper) inflation as has been experienced in Nigeria since late 70”s the entire economic system will be at the brink of collapse (Emekekwe, 2018).

The impact of inflation on accounting reports and business decision of companies is one of the greatest constraints Nigerians re facing. Accounting problem in many parts of the world including Nigeria affects all aspects of business concern. Accounting reports during inflation is said to be distorted.

There is no doubt that some of the business failures in Nigeria during inflation of the recent years have resulted in many constraints due to irrational decisions made based on inflation distorted financial reports of such companies. Moreover, the inflationary nature of recent past years, federal government budget heralds a general rise in the prices of goods and services. Therefore, it is to avoid future business failures that this research project is embarked on.

It is crystal clear however, that for any business cooperation to survive, it must have apartment and precise information at its disposal. But how can corporation have this information when the financial reports itself are distorted by inflation? This is one of the purposes of this research to provide management in Nigerian companies the effective means and ways of processing and reporting financial information, which is current and meaningful during inflation. Although no accounting rules in Nigeria have been provided as to that effect which means that the knowledge will be of immense help in making appropriate decisions.

Decision making requires information which is measured on appropriate basis. Gluatier and Underdown (2011) argue that the monetary unit of measurement decreases in value because its purchasing power falls according to the degree of inflation. The consequences of the instability in the dimension of the unit of measurement in accounting are that objects and events which are measured in one period of time cannot be compared with similar goods and events which were measured in subsequent period. 

It is important to note that Accountants are still unwilling to provide information to external users about future expectations, which will be useful for decision making since this will mean abandoning a tradition based on objectivity. The development of accounting as an information science concerned with the need for decision makers to require measurements which are relevant and useful for these needs. In particular, such measurement should possess a high degree of predictive ability. Unfortunately, the practice in this country possesses serious obstacle to the use of reported profit for decision– making by external users.

This research work is based on the problem of inflation and how it affects companies in their financial report and decision-making in business. This study is based mostly to educate managers of Nigerian Bottling Company (Coca-Cola) on how to maximize profit to make ends meet in their various branches.

There have been evidences that most business failures in the country were as result of irrational business decisions made by managers based on inflationary distorted profit of such business unit. And yet, there are concrete signals that so called inflationary 2003, Federal Government Budget showed great failure in business.

This research has foreseen and therefore considered it necessary to carryout this research to help at least in reducing the rate of contemporary business corporation in country by bringing to the knowledge of company managers and all those involved in decision-making, the distortions that mark the conventional accounting reports during inflation problem, the way and means of processing and displaying accounting inflation so that things will be able to effectively tackle the inflation of the years to come.

Brief History of Nigerian Bottling Co. Plc (Coca-Cola)

The best known taste in the world of an ice-cold bottle is Coca-Cola was produced on 8th May, 1886 in Atlanta Georgia, USA by Dr. John Styth Pemberton, a Pharmacist.

The name Coca-Cola was given by Frank Robinson, Dr. Pemberton”s partner and book keepers. He also designed following script that distinguishes the famous trademark, Coca-Cola contents remained secret as they have been for over 100 years.

The formula known as Merchandise 7X is kept in a special security vault in a bank in the United States. In 1953, Coca-Cola came to Nigeria when the Nigerian Bottling Company Plc. opened its first branch in Lagos. There are other soft drinks produced by Coca-Cola. They are as yellow Fanta, soda Fanta, Chapman, sprite, Crest, Bitter Lemon, Schweppes Bitter Lemon, Schweppes soda and Tonic. Nigerians consumed not less than 8,000,000 bottles every day. The company has employed about 10,000 staffs.

Nigerian Bottling Company Plc is the largest manufacturer of carbon dioxide (CO2) gas used for making soft drink. The company has the largest privately owned fleet of delivery trucks, pick-ups and cars in Nigeria all working to bring delicious Coca-Cola to consumers” door steps.

Besides, the company has been putting something back into the society as reward for patronizing its products mainly through philanthropic activities, for example the company is a leader in the crusade for environmental production.

It is also a major sponsor of sporting events. The company is also conscious of its social responsibilities for this reason, it sponsors activities such as football, local and international competitions, table tennis-the Nigerian championship. The conservation movement activities of the disabled and many commercial events and projects.

1.2 Statement of the Problem

Inflation has negative effects, because it reduces the value of money, resulting in uncertainty of the value of gains and losses of borrowers, lenders, and buyers and sellers. The increasing uncertainty which inflation brings discourages saving and investment. It also has serious effect on reported profits because of high increase in the devaluation of money. The value of the reported profit today might be less tomorrow because of inflation and the decision made today on that reported profit may be misleading tomorrow because of inflation.   

Furthermore, the effects of inflation, thus hidden from the decision maker by convention of accounting procedures makes it difficult for managers to draw appropriate conclusions from financial data. This perhaps leads to the modified failure of contemporary business organizations in Nigeria in recent years, which results as a consequence of inflation on companies.

These problems arise because the financial reporting concept is based on age old concepts which for long have ignored the presence of inflation and its implication for decision making both by management and external users of reported profit. Overstated profits are measured in monetary terms; rising prices will induce external users to make investment decision without appreciating the consequences of the reduced value of their investment. 

1.3 Objectives of the Study

The main objective of this study is to examine the effect of inflation on financial report and decision making in business cooperation.

Specific objectives include;

i.          To determine the extent to which business decisions in Nigerian Bottling Company were affected by inflation between the period under review. 

ii.         To ascertain the extent to which inflation has impacted on the financial reports of the organization.

iii.        To examine the relationship between reported profits under inflationary period and business decision of the organization.

1.4 Research Questions 

The research questions were formulated from the specific objectives of the study as follows; 

i.          To what extent can inflation affect business decision in Nigerian Bottling Company?

ii.         How does inflation affect financial reports of Nigerian Bottling Company?

iii.        To what extent does reported profits of the organization relate to business decisions of the organization under the inflationary period?

1.5 Research Hypothesis

Based on the objectives of this study, the following null hypotheses were formulated to guide the study.

i.          There is no significant relationship between business decision and inflation in Nigerian Bottling Company

ii.         Inflation has not adversely affected financial reports of Nigerian Bottling Company within the period under review.

iii.        Business decisions of Nigerian Bottling Company have no direct relationship with inflation within the period under review. 

1.6 Significance of the Study

The study will be significant to the researcher, to Government, to management of banks, to the general public and to educationist.  

To the researcher: This study will add more to the knowledge bank of the researcher in the subject area of the effect of inflation on financial report and its implication for business decision making. 

To the management of Nigerian Bottling Company and Government: This study will spur them to have a rethink on the need for inflation accounting and appropriate profit report. 

To the general public: The study will help them make more rational decisions through understanding the value of their future savings and investments. 

To educationists: The study will not only serve as a basis for further research into impact of inflation on business decisions, but also add to the existing knowledge base in this crucial economic study.

1.7 Scope of the Study

This study focuses on the effect of inflation on financial report and decision making in Nigerian Bottling Company. It will focus on the period of 2015 to 2021.

1.8 Limitation of the Study

The restricted limitation of the study was due to a number of factors faced by the researcher, these include:

i.          Time: This was one of the constraints the researcher encountered during the period of the work. There was limited time to carry out this research due to the fact that the semester had a lot of academic activities which took their own turn of event with respect to time consumption.

ii.         Finance: Due to financial difficulty prevalent in the country and its resultant increase in price of commodities, transportation fares, research materials etc., the researcher did not find it very easy meeting up with the financial expenses orchestrated by the demands of the research work.

iii.        Inability of workers to give information: The move to collect necessary information for the research work was not easy one. In the organization, disclosing information about their internal operation has always been a difficult for the course of this research work.

1.9 Definition of Terms

The definitions here are meant to give vivid understanding of this study, there are some terms that are relevance to this study which needs to be defined. These terms includes the following;

Inflation: This is a general rise in the prices of goods and services in an economy.

Financial Report: Information provisions in the form of income statement and balance sheet must be vital during inflation.

Decision Making: Choosing or selecting from among alternatives by managers of business corporations in Nigeria.

Business Corporation: Incorporated entities with the profit making as their main goal.

Reported profit: This is the annual report of the performance of a firm or an organization at a particular period.

People Profit: Fictitious profit on book, which results from recording revenue on current basis and cost on historical basis.

General Price Index: A ration showing the rate of price changes in relation to all items in the economy.

Price Level Adjusted Profit: This is profit estimated by applying the conventional accounting profit, the appropriate index so as to make allowance for the impact of price changes in the value of money and a rise in the money value of the national income greater than the rise in its real value.