The present time has been clearly marked by the phenomenon of price change. This situation has provoked the questions on a number of authors, associations, scientific and professional institutions, bodies concerned with accounting, and users of financial statements. These questions are concerned with the feasibility and appropriateness of the data included in financial statements and records based on historical cost for economic decisions.                                                                                                             

Despite the great concern for overcoming the influence of inflation in a number of world countries, inflation seems not to have been given any attention in Palestine. Therefore, this current study aims at choosing an appropriate method for highlighting the influences of inflation on financial statements prepared by the Palestinian economic bodies through modifying the accounting figures included in these financial statements in accordance with the special rate of prices. Consequently, modification of the general price outcomes for Palestinian consumers will take place and then the proposed model for implementation – modified replacement cost model – will be tested. Eventually, the data based on historical value will be compared with data based on modified replacement cost to find out the influences resulting from the outcomes of financial statements when taking the effects of price changes into consideration.                          .                                                                                               

The proposed model was tested in a Palestinian company. The study showed substantial differences between the results of accounting measurements according to the proposed model and the results of accounting based on historical value basis. It can be concluded, at this juncture, that using the historical cost basis will lead to misleading and contrary to fact outcomes, a thing which will negatively affect the reliability and appropriateness of financial statements outcomes.                                                                                        

The study recommended that the proposed model should be used as additional statements besides statements prepared on the historical cost so as to meet the needs of the different categories of financial statements’ users.