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."
Money is the greatest economic invention of all time.
Money did not exist and was not discovered. Money was invented over a long
period of time.
Money is not perfectly stable in real value during
inflation and deflation. However, all Historical Cost Accounting world–wide is
done assuming it is stable in real value when the stable measuring unit
assumption is implemented for the valuation of most – not all – constant real
value non-monetary items duringinflation and deflation. It is assumed, in practice, that money is
perfectly stable when balance sheet constant items and all income statement
items (excluding constant items like salaries, wages, rentals, etc., which are
measured in units of constant purchasing power on an annual basis, but paid
monthly implementing the stable measuring unit assumption) are valued in
nominal monetary units when financial capital maintenance in nominal monetary
units (HCA) is implemented during inflation and deflation as authorized in IFRS
in the original Framework (1989), Par 104 (a).
Money is not the same as constant real value during
inflation and deflation. Money would only have a constant real value over time
during permanently sustainable zero annual inflation which has never been
achieved in the past and is not likely soon to be achieved in the future.
The real values of monetary items (excluding bank
notes and coins) would remain constant over time when the total money supply
within an economy is inflation-indexed on a daily basis in terms of a Daily CPI
or a monetized daily indexed unit of account with complete co-ordination. Chile
(2011) inflation-adjusts 20 to 25 per cent of its broad M3 money supply on a
daily basis in terms of the Unidad de
Fomento which is a monetized daily indexed unit of account in use since
1967. Many countries issue capital inflation-indexed government bonds inflation-adjusted
on a daily basis which protect investors against the erosion of the real value
of their capital during inflation.
There would be no net monetary losses or gains and
also no cost of inflation with complete daily inflation-adjustment of the total
money supply with complete co-ordination. There would still be inflation, but
it would have no effect in the economy.
Bank notes and coins are physical tokens of money.
Unstable money is an unstable monetary item which is used as an unstable
monetary medium of exchange. It serves at the same time as an unstable monetary
store of value and as the unstable monetary unit of account for the accounting
of economic activity in a country or a monetary union. All three basic economic
items – monetary, variable and constant items – are valued in terms of unstable
money within an economy.
An earlier form of money was commodity money, e.g.,
gold, silver and copper coins which had substantial real intrinsic value. Today
unstable money is fiat money with an insignificant physical intrinsic value
created by government fiat or decree.
Unstable money is an unstable medium of exchange which
is its main function. Without that function it could never be money. The
historical development of unstable money led it also to be used as an unstable
store of value and as the unstable unit of measure to account the values of
Unstable money is the only generally accepted unit of
measure that is not a stable value under all circumstances. All other units of
measure are fundamentally stable units of measure, e.g., inch, centimetre,
ounce, gram, kilogram, pound, etc.
Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.