Residual income valuation models based on historical cost accounting may underestimate equity values due to inflation. Adjusting for inflation is crucial for accurate forecasting and valuation. Even with low inflation, these models can undervalue assets if inflation is not considered. Real data poses challenges for empirical investigations. Historical cost accounting overlooks increased depreciation from asset value growth, but this is balanced by excluding holding gains in clean surplus accounting. An 'other information' variable, based on forecasted future earnings, is introduced to account for additional accounting information not reflected in current abnormal earnings and book value. Dividend-adjusted earnings are added to shareholder's book value under clean surplus accounting.