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Saturday, 16 July 2011

Valuing / accounting monetary items

Valuing / accounting monetary items


A monetary item is valued and accounted in a ledger account over time at its nominal value, e.g. the nominal value of a bank coin, bank note, cheque, bond, Treasury bill, the capital value of a loan or financial instrument with an underlying monetary nature, etc. A monetary item is accounted at today´s date with today´s CPI, for example, at 100, at its nominal value of, e.g., USD 100. When the CPI changes to 102 tomorrow, the monetary item in a ledger account and in a current period financial report published during the current accounting period is always valued at its original nominal value. A monetary item is not inflation-adjusted in a ledger account or in current period financial reports published during the current accounting period. It stays at USD 100. The monetary item in a ledger account remains at its original nominal value at all future values of the CPI during inflation and deflation and at all future values of the daily parallel rate or daily index rate during hyperinflation. A current period monetary item is never inflation-adjusted in financial statements published during the current accounting period.

Historical monetary items (excluding monetary items in ledger accounts) in whatever published format are inflation-adjusted in order to state the real value of the monetary item at the historical date in terms of today´s CPI during inflation and deflation and in terms of the today´s daily parallel rate or today´s daily index rate during hyperinflation. There is no stable measuring unit assumption under CIPPA and CPPA.



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Nicolaas Smith