ICAI Notes- Unit 1: Index Numbers- 2 - CA Foundation PDF Download

Summary

• An index number is a ratio or an average of ratios expressed as a percentage, Two or more time periods are involved, one of which is the base time period. 
• Issues Involved in index numbers
  (a ) Selection of Data
  (b) Base period
  (c) Selection of Weights:
  (d) Use of Averages:
  (e) Choice of Variables

Construction of Index Number
Price Index numbers
(a) Simple aggregative price index =
(b) Laspeyres’ Index: In this Index base year quantities are used as weights:
Laspeyres Index =
(c) Paasche’s Index: In this Index current year quantities are used as weights:
Passche’s Index  (d) The Marshall-Edgeworth index uses this method by taking the average of the base year and the current year
Marshall-Edgeworth Index  =

• Fisher’s ideal Price Index: This index is the geometric mean of Laspeyres’ and Paasche’s.
  Fisher’s Index =
• Weighted Average of Relative Method:
• (h) Chain Index =

Quantity Index Numbers:

• Simple aggregate of quantities:
• The simple average of quantity relatives:
• Weighted aggregate quantity indices:
  (i) With base year weight :
  (ii) With current year weight :
  (iii) Geometric mean of (i) and (ii) :
• Base-year weighted average of quantity relatives. This has the formula
• Value Indices
• Deflated Value =
  or

• Shifted Price Index =
• Test of Adequacy
  (1) Unit test (2) Time reversal Test (3) Factor reversal test (4) Circular Test