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Tuesday, 22 November 2011

Problems CIPPA can help solve

Problems CIPPA can help solve

1.    It would automatically solve the problem of the erosion of companies´ capital and profits by the stable measuring unit assumption (the HCA model) during low inflation amounting to hundreds of billions of USD p.a. on a worldwide basis and instead would automatically maintain that amount p.a. for and unlimited period of time in all entities that at least break even in real value during low inflation – ceteris paribus – whether they own any revaluable fixed assets or not.

2.    It would solve the problem of the very rapid destruction a country´s non-monetary economy by the implementation of the stable measuring unit assumption (HCA) during hyperinflation by means of daily measurement of all non-monetary items in units of constant purchasing power in terms of the daily US Dollar parallel rate or a Brazilian style daily index.

3.    It would solve the problem of economic instability caused by the implementation of the stable measuring unit assumption (HCA) during deflation.

4.    It corrects the fallacy that the erosion of companies´ capital and profits is caused by inflation: it is caused by the stable measuring unit assumption during inflation.

5.    It corrects the fallacy that financial capital can be measured in nominal monetary units per se as stated in IFRS: it is impossible to maintain the real value of financial capital in nominal monetary units per se during inflation.

6.    It corrects the fallacy that changes in the purchasing power of money are not sufficiently important to require financial capital maintenance in units of constant purchasing power during low inflation. The implementation of the stable measuring unit assumption causes the erosion of hundreds of billions of US Dollars in real value p.a. worldwide in that portion of entities´ shareholders´ equity not backed by sufficient revaluable fixed assets (revalued or not) during low inflation.

7.    It corrects the generally accepted belief that there are only two concepts of capital and capital maintenance authorized in IFRS; there are three concepts of capital authorized in IFRS: (i) physical capital (ii) financial capital measured in units of constant purchasing power (CIPPA) and (iii) financial capital measured in nominal monetary units (HCA).

8.    It corrects the generally accepted belief that there are only two basic economic items in the economy; there are three: monetary, variable and constant items.

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