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Friday, 4 September 2009

Question No 2 for a chicken without a head

SA accountants, please answer the following question:

2. Are there net monetary losses and gains during low inflation?

The IASB approved IAS 29 Financial Reporting in Hyperinflationary Economies in 1989 which requires the calculation of net monetary losses and net monetary gains during hyperinflation.

SA accountants, there are net monetary losses and net monetary gains during hyperinflation because money loses real value during hyperinflation. If a company holds, on average, more monetary assets than liabilities during the financial year then it incurs a net monetary loss which is calculated and accounted during hyperinflation. With more monetary liabilities than monetary assets, on average, during the financial year, the company would have a net monetary gain that would be calculated and accounted during hyperinflation.

We all know that the Rand loses real value at 6.7% at the moment – during low inflation. All SA companies with, on average, more monetary assets than monetary liabilities during the 2009 financial year incur net monetary losses exactly the same as under hyperinflation. The same is true for companies with net monetary gains with, on average, more monetary liabilities than monetary assets during 2009.

These amounts are not calculated and accounted during low inflation by any SA accountant. They would be calculated and accounted when SA accountants start measuring financial capital maintenance in units of constant purchasing power in terms of the Daily CPI as authorised in the IASB´s original Framework(1989), Par. 104 (a) which states: "Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power."

SA accountants, are there net monetary losses and gains during low inflation?

Why do you calculate them during hyperinflation and not during low inflation?

Do you have a clue of what is going on, or are you jumping down the drive-way like a chicken without a head?

Kindest regards,

Nicolaas Smith