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Thursday, 23 January 2014

Preserving Retained Income and Capital Reserves on changeover to CMUCPP

Preserving Retained Income and Capital Reserves on change-over to CMUCPP

When changing from Historical Cost Accounting to Capital Maintenance in Units of Constant Purchasing Power in terms of a Daily Index it is required - in terms of fundamental accounting / financial reporting concepts to simply wipe out hard-earned (over many years) Retained Income and other Capital Reserves appearing in the final HC balance sheet.

"Restated retained earnings are derived from all the other amounts in the restated statement of financial position."
 
IAS 29, par. 24

No shareholder and no board of directors would normally accept such a requirement from a capital creation and capital maintenance point of view. But, that is what is required - in terms of fundamental accounting concepts.

So, to avoid just wiping out maybe millions or billions of USD in Retained Earnings and other Capital Reserves, simply transfer these amounts to Capital by means of a board resolution just before changing over to CMUCPP in terms of a Daily Index.

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