Pages

Saturday, 25 May 2013

Example of Daily versus monthly CPI under IAS 29




Example of Daily versus monthly CPI under IAS 29

The following are data showing a derived monthly CPI and Daily CPI for Zimbabwe from 1 November 2007 till 31 December 2007 based on actual monthly inflation percentages. Only the monthly inflation information is actual data from the Central Bank of Zimbabwe. The rest are all theoretically derived data.

Application of IAS 29 and CMUCPP using data from Zimbabwe
 
Monthly inflation rates reported by the CB of Zimbabwe from Mar 2007 till July 2008 (Steve Hanke article)
Date
Derived relatively stable foreign curreny rate
Mnthly
Derived Monthly CPI on month-end
ZimDollars per 1 US Dollar
Inflation %
URV based Daily Index on other days
Zim$/USD rate based on derived CPI
Month-end Daily Index assumed = CPI
01/nov/07
43,8769
4 387,69
02/nov/07
45,7184
4 571,84
03/nov/07
47,5598
4 755,98
04/nov/07
49,4012
4 940,12
05/nov/07
51,2427
5 124,27
06/nov/07
53,0841
5 308,41
07/nov/07
54,9256
5 492,56
08/nov/07
56,7670
5 676,70
09/nov/07
58,6084
5 860,84
10/nov/07
60,4499
6 044,99
11/nov/07
62,2913
6 229,13
12/nov/07
64,1327
6 413,27
13/nov/07
65,9742
6 597,42
14/nov/07
67,8156
6 781,56
15/nov/07
69,6570
6 965,70
16/nov/07
71,4985
7 149,85
17/nov/07
73,3399
7 333,99
18/nov/07
75,1813
7 518,13
19/nov/07
77,0228
7 702,28
20/nov/07
78,8642
7 886,42
21/nov/07
80,7056
8 070,56
22/nov/07
82,5471
8 254,71
23/nov/07
84,3885
8 438,85
24/nov/07
86,2300
8 623,00
25/nov/07
88,0714
8 807,14
26/nov/07
89,9128
8 991,28
27/nov/07
91,7543
9 175,43
28/nov/07
93,5957
9 359,57
29/nov/07
95,4371
9 543,71
30/nov/07
97,2786
131,42
9 727,86
01/dez/07
104,8117
10 481,17
02/dez/07
112,3448
11 234,48
03/dez/07
119,8779
11 987,79
04/dez/07
127,4111
12 741,11
05/dez/07
134,9442
13 494,42
06/dez/07
142,4773
14 247,73
07/dez/07
150,0105
15 001,05
08/dez/07
157,5436
15 754,36
09/dez/07
165,0767
16 507,67
10/dez/07
172,6098
17 260,98
11/dez/07
180,1430
18 014,30
12/dez/07
187,6761
18 767,61
13/dez/07
195,2092
19 520,92
14/dez/07
202,7423
20 274,23
15/dez/07
210,2755
21 027,55
16/dez/07
217,8086
21 780,86
17/dez/07
225,3417
22 534,17
18/dez/07
232,8749
23 287,49
19/dez/07
240,4080
24 040,80
20/dez/07
247,9411
24 794,11
21/dez/07
255,4742
25 547,42
22/dez/07
263,0074
26 300,74
23/dez/07
270,5405
27 054,05
24/dez/07
278,0736
27 807,36
25/dez/07
285,6067
28 560,67
26/dez/07
293,1399
29 313,99
27/dez/07
300,6730
30 067,30
28/dez/07
308,2061
30 820,61
29/dez/07
315,7392
31 573,92
30/dez/07
323,2724
32 327,24
31/dez/07
330,8055
240,06
33 080,55

                                                                                                                                     

 

Example

Zimbabwean company formed on 1 November 2007 with USD 1000 in capital invested on day one in stock and sold on day one with a 300 percent markup. IAS 29 applied in terms of the monthly CPI and the Daily CPI.

     Hist Cost
Date
Dr
Cr
Dr
Cr
USD
USD
Zim$
Zim$
1/11/07
Capital
1000
43 877
1/11/07
Stock
1000
43 877
1/11/07
Bank
4000
175 508
1/11/07
Sales
4000
175 508
30/11/07
31/12/07
P+L – CoS
1000
43 877
31/12/07
Stock
1000
43 877
 
31/12/07
Sale
4000
175 508
31/12/07
P+L – Sales
4000
175 508
31/12/07
Net Monetary Loss
-
-
-
-
31/12/07
P+L - Net Mon Loss
-
-
-
-
31/12/07
Net Monetary Loss
-
-
-
-
31/12/07
Ret Profit/Loss
3000
131 631
31/12/07
P+L - Ret Profit/Loss
3000
Profit
Profit

 

 

IAS 29 with monthly CPI
Date
Daily CPI
Z$/USD
Conv
Dr
Cr
Derived
Derived
Factor
Zim$
Zim$
1/11/07
4 387,69
43,8769
Capital
3,40
149 208
1/11/07
4 387,69
43,8769
Stock
3,40
149 208
1/11/07
4 387,69
43,8769
Bank
1,00
175 508
1/11/07
4 387,69
43,8769
Sales
3,40
596 831
30/11/07
9 727,86
97,2786
3,40
31/12/07
33 080,55
330,8055
P+L – CoS
3,40
149 208
31/12/07
33 080,55
330,8055
Stock
3,40
149 208
 
31/12/07
33 080,55
330,8055
Sales
3,40
596 831
31/12/07
33 080,55
330,8055
P+L - Sales
3,40
596 831
31/12/07
33 080,55
330,8055
Net Monetary Loss
421 322
31/12/07
33 080,55
330,8055
P+L - Net Mon Loss
421 322
31/12/07
33 080,55
330,8055
Net Monetary Loss
421 322
31/12/07
33 080,55
330,8055
Ret Profit/Loss
26 301
31/12/07
33 080,55
330,8055
P+L - Ret Profit/Loss
26 301
1 939 700
1 939 700
Profit

 

 

IAS 29 with Daily CPI
Date
Daily CPI
Z$/USD
Conv
Dr
Cr
Derived
Derived
Factor
Zim$
Zim$
1/11/07
4 387,69
43,8769
Capital
7,54
330 806
1/11/07
4 387,69
43,8769
Stock
7,54
330 806
1/11/07
4 387,69
43,8769
Bank
1,00
175 508
1/11/07
4 387,69
43,8769
Sales
7,54
1 323 222
30/11/07
9 727,86
97,2786
31/12/07
33 080,55
330,8055
P+L - CoS
7,54
330 806
31/12/07
33 080,55
330,8055
Stock
7,54
330 806
 
31/12/07
33 080,55
330,8055
Sales
7,54
1 323 222
31/12/07
33 080,55
330,8055
P+L - Sales
7,54
1 323 222
31/12/07
33 080,55
330,8055
Net Monetary Loss
7,54
1 147 714
31/12/07
33 080,55
330,8055
P+L - Net Mon Loss
7,54
1 147 714
31/12/07
33 080,55
330,8055
Net Monetary Loss
7,54
1 147 714
31/12/07
33 080,55
330,8055
Ret Profit/Loss
155 298
31/12/07
33 080,55
330,8055
P+L - Ret Profit/Loss
155 298
4 611 067
4 611 067
Loss

 

From the above examples we can see that the results under IAS 29 with a Daily CPI is different from IAS 29 with the monthly CPI. The Daily CPI data show what really happened.

When all sales are for cash, net equity will be the same under both the monthly and Daily CPI. This is only the case when all sales are only for cash.

Under IAS 29 applying HC principles, sales for cash and on credit would have the same result. Debtors are monetary items under HCA and as IAS 29 is implemented. Not under CMUCPP in terms of a Daily CPI. Debtors are constant real value non-monetary items under CMUCPP since they are always linked to non-monetary items and the result would be the same as in USD: no loss at all in the real value of Debtors, i.e., no Net Constant Purchasing Power Loss that is calculated in the same way as the Net Monetary Loss. Profit would be better than in USD. Ideal CMUCPP results in zero erosion of real value, i.e., the same as under zero inflation. There is still erosion of real value in USD since USD accounts assumes the low inflation in the USD does not exist, i.e., the HC stable measuring unit assumption is applied.

Ideal CMUCPP in terms of a Daily Index would result in actual zero erosion of real value in all entities that at least break even in real value – ceteris paribus – at all levels of inflation and deflation.

 
Nicolaas Smith

Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.