DEFINITION OF FINANCIAL CAPITAL MAINTENANCE IN UNITS OF CONSTANT PURCHASING POWER

DEFINITION OF FINANCIAL CAPITAL MAINTENANCE IN UNITS OF CONSTANT PURCHASING POWER

Financial capital maintenance in units of constant purchasing power is the automatic maintenance of the real value (constant purchasing power) of capital (equity), based on the principle that the real value (constant purchasing power) of equity is always equal to the real value of net assets for an indefinite period of time in all entities that at least break even in real value – all else being equal – at all levels of inflation and deflation, including during hyperinflation as authorised in current IFRS in The Conceptual Framework (2010), Par. 4.59 (a) in terms of a Daily Consumer Price Index or other daily index.

STABLE MEASURING UNIT ASSUMPTION NEVER IMPLEMENTED

The stable measuring unit assumption is never implemented under financial capital maintenance in units of constant purchasing power.

Financial capital maintenance in units of constant purchasing power is not Constant Purchasing Power Accounting, i.e., it is not the restatement of non-monetary items in Historical Cost or Current Cost financial statements during hyperinflation.

Financial capital maintenance in units of constant purchasing power is the same as to CONSTANT ITEM PURCHASING POWER ACCOUNTING as described in the Kindle e-book CONSTANT ITEM PURCHASING POWER ACCOUNTING per IFRS.  You can download a free Kindle Reading Application here.

VALUE DATE

The value date under financial capital maintenance in units of constant purchasing power is always the current date, i.e., today, namely today´s Daily CPI or today´s market price or other daily index. All items are always stated, viewed, accessed, printed, published and presented at today´s real value. Tomorrow all the prices are different. They are valued of updated daily.

The Daily CPI is normally a one or two month lagged, daily interpolation of the monthly published CPI used in all countries issuing government capital inflation-indexed bonds to price these bonds on a daily basis.

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Nicolaas Smith

Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.