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Wednesday, 18 April 2012

Valuing variable items


Valuing variable items



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.


Nicolaas Smith

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