IFRS and US GAAP authorised CMUCPP maintains the constant purchasing power of constant real value non-monetary items (e.g. capital, all items in shareholders´ equity, provisions, salaries, wages, pensions, taxes, trade debtors/creditors, etc) in terms of a Daily CPI in entities that at least break even in real value during low and high inflation, hyperinflation and deflation - ceteris paribus. European Accounting Assoc: "Capital maintenance is a competing objective of financial reporting."
Variable real value non–monetary items are valued and
accounted in terms of IFRS at, for example, fair value, market value, the lower
of cost or net realizable value, recoverable value, present value, etc.
excluding the stable measuring unit assumption under financial capital
maintenance in units of constant purchasing power (CIPPA). These prices change
all the time: even minute by minute in many markets, e.g., the prices of
foreign currencies, commodities, precious metals, quoted shares, properties,
finished goods, services, raw materials, etc.Their historic
prices (e.g., of the day before) are updated on a daily basis to the current
(today´s) rate in terms of a Daily CPI or other daily rate when they are not
valued at the current date (today) in terms of IFRS as qualified.
Under the stable measuring unit assumption it is assumed
that changes in the purchasing power of money are not sufficiently important to
require capital maintenance in units of constant purchasing power on a daily
basis. Another way to state the stable measuring unit assumption is to state
that it is assumed that the real value of money is perfectly stable over time.
The stable measuring unit assumption is applied to the measurement of certain
non-monetary items under HCA. It is never applied under financial capital maintenance
in units of constant purchasing power (CIPPA).
Inflation and deflation have no effect on the real value
of non-monetary items. Historic variable items are thus not inflation-adjusted
or deflation-adjusted daily. Historic variable items are updated daily in terms
of a daily index or other daily rate when they are not valued daily in terms of
IFRS as qualified.
Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.