Pages

Thursday, 25 August 2011

Difference between measurement in terms of the CPI and a Daily Index

Difference between measurement in terms of the CPI and a Daily Index
A Daily Index is required when financial capital maintenance in units of constant purchasing power  (CIPPA) as authorized in IFRS in the original Framework (1989), Par 104 (a) as maintained in the current Conceptual Framework (2010), Par 4.59 (a) is implemented during inflation and deflation.

A Daily Index is simply a lagged daily interpolation of the CPI. It is a lagged and smoothed CPI. It is lagged because the CPI for a particular day may only become available 41 days later. That is impractical in daily business operations where, e.g. trade debtors and trade creditors may pay or be paid on any day.

It is smoothed because financial capital maintenance in units of constant purchasing power by means of measurement in terms of the CPI may result in sudden increases or decreases in the value of items on the monthly publication date of the CPI.

The DI is based on the CPI. It is basically measurement in terms of the CPI, just lagged and smoothed for practical purposes.

Nicolaas Smith

Copyright (c) 2005-2011 Nicolaas J Smith. All rights reserved. No reproduction without permission.