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Modern accounting has been treated on the basis of stability of monetary unit. A long standing principle accounting holds that transaction should be recorded at historical cost. Many accountants, However, criticize the present reporting model, noting that historical cost financial statements have served limitations. During the periods of significant price level changes, the amount of original capital invested in the business would not be maintained and taxable income, income tax expense, and net income may be overstated. Such inflationary effects are more serious than some optimists consider. From the 1960s in the advanced countries, there has been a great deal of discussion about what accounting produces and what it should be adopted to cope with the changes in prices and in the purchasing power of money. As a consequence, the accounting and financial world is presented with challenges, decisions, and opportunities. Events and circumstances are causing accountants and others to accept proposals for improvements in financial reporting. The purpose of this thesis is not only to examine and introduce the process of recent developments achieved in the advanced countries, in the methods of inflation accounting which have significant impact on the Korean business today, but also to search for valid method for the modification of historical cost under price-level changes. The validity method in this paper means the modification on general prim index. The objective of its method is to maintain capital in terms of general purchasing power measured by a genergal pricl-index.
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