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."
Utility, scarcity and exchangeability are the three basic attributes of
an economic item which, in combination, give it economic value. All economic
items are exchangeable and money is generally the generally accepted medium of
exchange. All economic items thus have monetary values in an economy using
money as the monetary unit of account. Both monetary items and non–monetary
items are expressed in monetary terms; i.e., in terms of the monetary unit of
account. The monetary unit is used as the unstable medium of exchange, unstable
unit of account and unstable store of value. Variable real value non–monetary
items, constant real value non–monetary items and monetary items are all
expressed in terms of money and have monetary values.
There is, however, a difference between having a monetary value and
being a monetary item. All economic items have monetary values, but, only money
and items with an underlying monetary nature which are substitutes for money
held are monetary items. Non–monetary items have monetary values: they have
their economic values expressed in terms of money, but they are not monetary
Houses, cars, mobile phones, raw material, etc. have monetary values,
but they are not monetary items. They are variable real value non–monetary
items whose real values are expressed in terms of depreciating or appreciating
money depending on whether the economy is in a state of inflation or deflation.
Likewise salaries, wages, rentals, pensions, interest, taxes, retained
earnings, issued share capital, capital reserves, all other shareholder equity
items, trade debtors, trade creditors, deferred tax assets and liabilities,
taxes payable and receivable, etc. have depreciating or appreciating monetary
values, but they are not monetary items. They are constant real value
non–monetary items whose constant real non–monetary values are expressed in
terms of depreciating or appreciating money. Constant real value non–monetary
items´ real values are maintained constant with financial capital maintenance in
units of purchasing power during inflation and deflation, i.e., with Constant
Item Purchasing Power Accounting or with measurement in units of constant
Examples of items with an underlying monetarynature
Credit card loans
They are monetary items lent or borrowed, normally payable or receivable
in money.Variable and constant items
to be paid or received in money remain variable and constant items. Money is
simply the monetary medium of exchange used to transfer the ownership of a
variable item or constant item from one entity to another.
Items with an underlying monetary nature have exactly the same attributes
as money held with the exception that they are not bank notes and coins.
Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.