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Friday, 8 April 2011

Perpetual automatic capital maintenance versus perpetual automatic capital erosion

Constant Item Purchasing Power Accounting versus Historical Cost Accounting

CIPPA equals perpetual automatic capital maintenance while HCA equals  perpetual automatic capital erosion.

CIPPA: The IFRS-authorized alternative to HCA which automatically stops the erosion of capital by the stable measuring unit assumption forever.

Accounting cannot and does not create constant real non-monetary value out of nothing. On the one hand, the basic proposition that historical cost financial statements show illusory profits and mask erosion of capital is virtually undisputed. On the other hand, CIPPA automatically maintains existing constant real non-monetary value (capital) constant forever in all entities that at least break even - ceteris paribus - whether they own revaluable fixed assets or not.

Nicolaas Smith

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