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Wednesday, 16 April 2014

HCA is like shooting yourself in both feet

HCA is like shooting yourself in both feet

Under Historical Cost Accounting you apply the stable measuring unit assumption. That´s a double whammy to the maintenance of real value: (a) you do not maintain the real value of monetary items and (b) you do not maintain the real value of constant real value non-monetary items during inflation and deflation as follows:

1. With monetary items you assume money is perfectly stable and you DO NOT inflation-index all monetary items daily 

and

2. With constant real value non-monetary items you apply the stable measuring unit assumption and you DO NOT measure constant real value non-monetary items in units of constant purchasing power in terms of all changes in the general price level, that is: at least daily. 

There´s you double whammy to real value under HCA.

Under Capital Maintenance in Units of Constant Purchasing Power (CMUCPP) in terms of the Daily CPI you would:

A Maintain the real value of all monetary items by inflation-indexing them daily 

and 

B Maintain the constant purchasing power (real value) of all constant real value non-monetary items constant by measuring them in units of constant purchasing power in terms of the Daily CPI. 

Nicolaas Smith 

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