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."
The whole money supply would be deflation-adjusted daily under complete
coordination and perfect financial capital maintenance in units of constant
purchasing power during deflation. It is highly unlikely that this would happen
right from the start in any economy which decides to abandon the HCA model
while it is in deflation and adopt financial capital maintenance in units of
constant purchasing power (CIPPA). Monetary items not deflation-adjusted daily
in bank and ledger accounts would continue to be valued in nominal monetary
units and the net monetary gain or loss would be calculated and accounted under
financial capital maintenance in units of constant purchasing power (CIPPA).
Monetary items not deflation-adjusted daily are valued in nominal monetary
units under the HCA model during deflation. Their real values thus increase
daily. The net monetary gain or loss is not calculated under HCA during
Not all inflation-indexed government bonds become deflation-indexed
bonds when the economy changes over from inflation to deflation. US
Treasury Inflation-Protected Securities (TIPS) and most euro-denominated
sovereign inflation-indexed bonds, for example, contain a clause that states
that when the nominal value of the capital amount adjusted for deflation is less than the original nominal amount,
the original amount would be repaid. These bonds would thus be nominal bonds
and the capital amounts would gain in real value during deflation.
The presence of this guarantee, which is beneficial
for the investor in the event of deflation, is mainly due to accounting
considerations: in a lot of countries, bonds must have a minimum redemption
This normally does not apply to the coupon payments. They stay the same
in real value during inflation and deflation, i.e., they would be lower in
nominal value during deflation, but the same in real value.
Some countries´ government inflation-indexed bonds do not contain the
above clause and thus become capital deflation-indexed bonds during deflation,
i.e., they are real constant real value bonds. Their capital amounts and their
coupon payments would be constant in real value during inflation and deflation.
The UK, Canada
and Japan, do not guarantee a minimum redemption price for their indexed