CMUCPP in terms of the Daily CPI Rejects the Stable Measuring Unit Assumption

The stable measuring unit assumption is rejected under the Capital Maintenance in Units of Constant Purchasing Power in terms of the Daily CPI (CMUCPP) paradigm. 

This changes the fundamental finanancial capital maintenance concept from financial capital maintenance in nominal monetary units - the global, generally accepted Historical Cost paradigm - to the IFRS and US GAAP authorised financial capital maintenance in units of constant purchasing power in terms of the Daily CPI paradigm.

What are the differences?

1. The stable measuring unit assumption. It is implemented under the HC paradigm. It is never implemented under the CMUCPP in terms of the Daily CPI paradigm.

2. Net monetary gains and losses. Never accounted under HCA. Always accounted under CMUCPP in terms of the Daily CPI.

3. Balance Sheets. HCA balance sheets only balance in nominal value, never in real value. They are normally prepared monthly, quarterly, six monthly and anually. They are never up to date, either in real value or in terms of the general price level - even at first publication/ finalization. CMUCPP in terms of the Daily CPI balance sheets always balance in real value and are always up to date in terms of the general price level at the date they are consulted/viewed. They are prepared at the same intervals - monthly, quarterly, six monthly and yearly, but - once prepared - all the values in a balance sheet are updated daily in terms of the Daily CPI indefinitely. The same is done with the newly prepared balance sheet at the new month end, etc, etc. They are always presented in terms of the current general price level. They are never out of date. The moment the general price level passes into deflation, smaller nominal values means bigger real values, thus maintaining the units of constant purchasing power in terms of the Daily CPI principle. Online automatically updated CMUCPP in terms of the Daily CPI balance sheets is best practice. 

4. Negative Interest Rates. HCA during deflation automatically leads to negative interest rates while that is impossible under CMUCPP in terms of the Daily CPI because real value calculation inverts the moment the economy enters into deflation.

The general price level is presented only by the Daily CPI. However, during hyperinflation, the general price level can - on a few days (now and then) - change more than once a day in very exceptional circumstances of runaway or galloping hyperinflation.

Never implementing the stable measuring unit assumption results in the eroding of the real value of money during low, high and hyperinflation being fully compensated for by means of the implementation of the units of constant purchasing power in terms of the Daily CPI principle. See, for example, the implementation of the Unidade Real de Valor during hyperinflation in Brazil in the 1990s. Likewise it fully compensates for the increasing of the real value of money during deflation.

Not implementing the stable measuring unit assumption compensates for the eroding-the-real-value-of-money effect of low, high and hyperinflation during low, high and hyperinflation. It also compensates for the increasing-the-real-value-of-money effect of deflation during deflation.

It is wrong to state that the implementation of the stable measuring unit assumption destroys the real value of money during inflation because, theoretically, all such eroded real value can eventually be restored after long enough (centuries maybe) deflation. 

Too good to be true?

The benefits of CMUCPP in terms of the Daily CPI are too good to be true? Not at all: they are based on maths, the Daily CPI, double entry accounting (the three-thousand-year-old free, open, global, decentralised, permissionless block chain - when audited), never implementing the stable measuring unit assumption and always accounting net monetary gains and losses - which make its effect and maintenance automatic and sustainable over time. CMUCPP in terms of the Daily CPI is also authorised in IFRS and US GAAP.

Resistance to change

Rest assured: there is no chance that the world would ever implement CMUCPP in terms of the Daily CPI as a global paradigm change any time soon. The world economy has been based on the nominal Historical Cost Accounting paradigm since the first day inflation was created by a sovereign king a few thousand years ago. We are not going to change that very easily. It may never actually happen. Freedom of thought, however, cannot be stopped.

It is, at least, important that the theoretical work regarding the effects of CMUCPP in terms of the Daily CPI carries on being done. However, although they should, I do not think there is a single central bank seriously studying CMUCPP in terms of the Daily CPI to determine its effect on currency stability and economic stability. They simply do not understand it yet or know about it yet. Normal resistance to change. Nothing wrong with that. 

The best hope is that a small, advanced country would implement it and that it would then spread from there.

The best candidate to start CMUCPP in terms of the Daily CPI would be Zimbabwe. They are very close to being a cashless economy and they are very bold - out of necessity - in monetary experiments. However - simply in my respectful opinion (I may be wrong) - they lack in the level of accounting and technological sophistication necessary for such an experiment.

Monetary experimentation boldness they certainly do not lack.

Freely available to any country

Since all these fundamental concepts are freely available to all nations, any nation may implement CMUCPP in terms of the Daily CPI. It would have a very stable currency as a result of a very stable economy as a result of the automatic rejection of the stable measuring unit assumption in its economy.

Is all this new knowledge? Not at all. The Brazilians did it in the 1990s with the Unidade Real de Valor. 

I confirmed what I know by studying what happened then. My personal experience came from stopping the fear of hyperinflation in the company where I worked in Angola in 1996 by means of daily US Dollar indexing all items in the company in terms of the daily parallel rate for the local Kwanza. I found out about the Unidade Real de Valor in my subsequent study of the effect of the stable measuring unit assumption during hyperinflation, high inflation, low inflation and deflation.

The URV experience and knowledge are simply being ignored by economists and accountants in general and by the International Accounting Standards Board specifically. Why? Because of the relative stability of the global financial system under the single, three-thousand-year-old, nominal Historical Cost Accounting paradigm. Resistance to change. Very normal.

Let us assume a country implements CMUCPP in terms of the Daily CPI. As a result of its very stable currency, it would then be able to pay for its imports by simply minting its own currency in the form of debt (QE) to the sustainable level its economy can maintain - automatically maintained stable in terms of CMUCPP in terms of the Daily CPI. It would use that newly minted national currency to buy the US Dollars, Euros, Yuans and Yens necessary to pay for increased imports in a sustainable process automatically maintained stable - at the right level - by means of the implementation of the CMUCPP in terms of the Daily CPI paradigm.

Sounds too good to be true? Not at all. See above.

Don´t be surprised when a smaller nation actually starts doing it - out of necessity. It is free. No cost involved. Its only effect is automatically maintaining the constant purchasing power of all constant real value non-monetary items by automatically rejecting the stable measuring unit assumption during all possible economic environments. That would result in a very stable currency because the currency is backed by the underlying economy in which all constant real value non-monetary items would be automatically maintained constant in real value in terms of CMUCPP in terms of the Daily CPI.

Most central banks do not study CMUCPP in terms of the Daily CPI because of the relative stability of the current global financial system. Most central banks do not realise the importance of the nominal Historical Cost Accounting paradigm - the implementation of the stable measuring unit assumption - in global financial instability during deflation and negative rates. All of that may change as a result of the global phenomenon of negative yields on government bonds during deflation under the nominal Historical Cost paradigm implemented in terms of the monthly published CPI. Bloomberg calls it a financial black hole that may engulf the world economy. 

Fortunately CMUCPP in terms of the Daily CPI provides a free way to fix the problem. However, there is no chance that any developed economy would implement it. Resistance to change. Three thousand years using nominal Historical Cost Accounting - the stable measuring unit assumption - as the only paradigm ever used by mankind is not going to change overnight. Forget about that. 

It is only by accident that both IFRS and US GAAP authorised CMUCPP in terms of the Daily CPI in 1989. It was done unintentionally by both accounting standard setters in a failed attempt to solve the problems created by nominal Historical Cost Accounting - the stable measuring unit assumption - during hyperinflation. Originally authorized in IFRS in the Framework (1989), Par 104 (a) which states: 'Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power.' This sentence is unchanged in the current IFRS Conceptual Framework. Both attempts keep on failing after all these years because they both stick with the monthly published CPI which is totally ineffective during hyperinflation as well as low inflation and deflation.

Some smaller countries may be interested in studying CMUCPP in terms of the Daily CPI - out of necessity. It is a free way for them to sustainable automatic currency stability as well as sustainable economic growth that would make them the envy of the nominal Historical Cost world economy.

Who knows what the future may bring?

Nick Smith 

Copyright (c) 2005-2022 N J Smith. All rights reserved. No reproduction without permission.

Negative real yield bonds impossible under CMUCPP in terms of the Daily CPI

It is impossible for a bond to have a negative real yield under Capital Maintenance In Units of Constant Purchasing Power in terms of the Daily CPI under all possible economic environments: low inflation, high inflation, hyperinflation and deflation. 

Please note: you cannot make calculations in nominal Historical Cost terms during deflation under Capital Maintenance in Units of Constant Purchasing Power in terms of the Daily CPI.

During inflation under both the CMUCPP in terms of the Daily CPI paradigm as well as the current nominal Historical Cost Accounting paradigm:

Assumptions: Nominal bond interest rate = +2% and inflation = +1%. 

Real interest = Nominal - inflation = +2 -(+1) = +2-1 = +1%

Real Values Invert automatically during Deflation

During deflation - the moment inflation passes zero percent and arrives at a minus or negative value - under the CMUCPP in terms of the Daily CPI paradigm, real values invert automatically which results in the constant purchasing power of all capital and all constant real value non-monetary items (eg., salaries, wages, pensions, taxes, trade debtors, trade creditors, etc.) being maintained constant automatically - obviously with the accounting of all net monetary gains and losses, something that does not happen under the current, generally accepted nominal Historical Cost paradigm.

Why and how? 

Why do real values invert automatically during deflation? 

Because of the principles of mathematics.

Under CMUCPP in terms of the Daily CPI the constant purchasing power of capital and all constant real value non-monetary items are automatically maintained constant because of maths during inflation. The same maths principles and concepts are valid during both inflation and deflation. 

Because the fundamental principle in the economy is to maintain the real value of capital. Why? Because that is the only way the double entry accounting model works correctly and automatically and the only way to achieve that is with the CMUCPP in terms of the Daily CPI paradigm.

How do real values automatically invert at the arrival of deflation?

The fundamental principle underpinning the economy based on financial capital is the result of - or, is only made possible because of - the double entry accounting model: every economic act has two sides, debit and credit. The only way it can work properly is when real value equality on both sides is automatically maintained under all economic environments (low inflation, high inflation, hyperinflation and deflation) on the debit and on the credit side. That makes real value capital maintenance the central principle in the economy. 

Because of the monetary effect of money caused by the process of inflation (deflation when inflation passes below zero), the only possible paradigm for automatically maintaining real value equivalence in an economy running on the double entry accounting model, is CMUCPP, but - only in terms of the Daily CPI. In terms of the monthly CPI does not work. 

Example

CMUCPP

Inflation

Period 1
Assumptions at start or period:
Capital = 1000
Wages = 100
Cost of 100 kg of potatoes = 100
Pension = 100
Tax = 10
Trade debtor = 10
Trade creditor = 10
Inflation = 0%

End of period 1

Capital = 1000
Wages = 100
Cost of 100 kg of potatoes = 100
Pension = 100
Tax = 10
Trade debtor = 10
Trade creditor = 10
Result: Constant purchasing power of all items has been maintained automatically.

Period 2
Inflation during period = 1%

End of period 2

Capital = 1010
Wages = 101
Cost of 100 kg of potatoes = 101
Pension = 101
Tax = 10.10
Trade debtor = 10.10
Trade creditor = 10.10
Result: Constant purchasing power of all items has been maintained automatically.

All items are exactly the same in real value as in Period 1, only the nominal values changed automatically in terms of 1% inflation in terms of CMUCPP in terms of the Daily CPI.

Assumption: Period 2 experienced 1% deflation instead of 1% inflation.

End of Period 2

Capital = 990
Wages = 99
Cost of 100 kg of potatoes = 99
Pension = 99
Tax = 9.90
Trade debtor = 9.90
Trade creditor = 9.90
Result: Constant purchasing power of all items has been maintained automatically.

All items are exactly the same in real value as in Period 1, only the nominal values changed automatically in terms of 1% deflation in terms of CMUCPP in terms of the Daily CPI.

You have to look at the above values at the end of Period 2 during deflation in terms of CMUCPP in terms of the Daily CPI. You cannot look at them in terms of the nominal Historical Cost paradigm. Very difficult, I know. :-)

Our minds have to get used to the fact that during deflation under the CMUCPP in terms of the Daily CPI paradigm, 99 is the same a 100 at the start of the period and often a smaller nominal value will in fact be a bigger real value depending on the specific rates involved in the specific item.

Result: Negative real yield bonds impossible under CMUCPP in terms of the Daily CPI.

Reading list
1. Banks Near Tipping Point as Negative Rates Draw Danish Warning.
2. Bankers Get No Mercy in Denmark as Request for Help Is Rejected.
3. Negative Interest Rates Threaten the Financial System.


THEN: REAL INTEREST CALCULATION IS STILL = NOMINAL - DEFLATION (DEFLATION IS NEGATIVE INFLATION = BELOW ZERO) 

DEFLATION = 1%  = -1% FOR REAL INTEREST RATE CALCULATION PURPOSES.

ASSUMPTIONS: NOMINAL BOND INTEREST = + 1%. DEFLATION = 1%.

REAL INTEREST = NOMINAL - DEFLATION
     = +1 -(-1) = 1+1 = 2%

FACT: REAL INTEREST = +2%. 


REAL INTEREST CAN NEVER BE NEGATIVE DURING INFLATION AND DEFLATION WITH CMUCPP In Terms Of the DAILY CPI. 

No black holes. It is the answer to the world´s problem with negative rates. 

However, nothing will ever be done about it. 

Nicolaas Smith Copyright (c) 2005-2019 Nicolaas J Smith. All rights reserved. No reproduction without permission.

Daily CPI is the effective general price level index

The general price level changes at least daily in all national economies and monetary unions under all monetary environments - low inflation, high inflation, hyperinflation and deflation. 

The Daily CPI is thus the effective general price level index for a specific economy or monetary union. 

This is confirmed by all countries that issue sovereign inflation-indexed bonds. They have to necessarily calculate their specific Daily CPIs and they have to make them publicly available by publishing them. They all update these government inflation-adjusted bonds daily in terms of their specific country Daily CPIs - the absolute proof the Daily CPI is the effective general price level index for an economy or monetary union.

The Daily CPI is an approximation of the monthly published CPI in that it is a lagged daily interpolation of the CPI. 

The Daily CPI is always known in advance. There are never any surprises.

Some of the countries issuing sovereign inflation-indexed bonds:

1. Argentina
2. Australia
3. Brazil
4. Canada
5. Chile
6. Colombia
7. Finland
8. France
9. Germany
10. Greece
11. Holland
12. Hong Kong

13. Iceland
14. India
15. Israel
16. Italy
17. Japan
18. Kuwait
19. Mexico
20. New Zealand
21. Portugal
22. Qatar
23. Saudi Arabia
24. South Africa
25. South Korea
26. Spain
27. Sweden
28. Turkey
29. United Arab Emirates
30. United Kingdom
31. United States

Nicolaas Smith Copyright (c) 2005-2018 Nicolaas J Smith. All rights reserved. No reproduction without permission.

Zero monetary effect

Zero inflation, deflation and hyperinflation effect.

Implementing IFRS and US GAAP authorized Capital Maintenance in Units of Constant Purchasing Power in terms of the Daily CPI 

during

1. low inflation results in zero low inflation effect,

2. high inflation results in zero high inflation effect,

3. hyperinflation results in zero hyperinflation effect and

4. deflation results in zero deflation effect.

South American countries´ central banks called it "monetary correction" in the 1970s to 1990s. The best example was the implementation of this principle with the use of the Daily Unidade Real de Valor in Brazil in 1994. 

Zero monetary effect can only be achieved when CMUCPP is implemented to reflect every change in the general price level, that is, at least daily in terms of the Daily CPI in non-hyperinflationary economies.

CMUCPP also has to be implemented in terms of the Daily CPI or daily parallel rate when a Daily CPI is not available during hyperinflation. 

However, it must be remembered that the general price level can and sometimes does change more than once a day during hyperinflation. This must be accompanied in the whole hyperinflationary economy, in accounting records and in contracts in order to correctly achieve zero hyperinflationary effect. 

Under all the above circumstances, the constant purchasing power of all constant real value non-monetary items (e.g., all items in shareholders equity, trade debtors, trade creditors, salaries, wages, pensions, taxes payable, taxes receivable, etc.) would automatically be maintained constant - ceteris paribus.

Nicolaas Smith Copyright (c) 2005-2018 Nicolaas J Smith. All rights reserved. No reproduction without permission.

Equity Equal to Net Assets Capital Maintenance Fallacy

Capital has never and is never and will never be maintained constant in real value by entities which prepare their financial statements on the nominal Historical Cost basis when it is taken into account that net monetary losses and gains are never accounted under this model and that sustainable zero inflation has never been achieved and will most likely never be achieved. It is also true that zero effect of inflation, hyperinflation and deflation is easily possible with daily indexing of all items in terms of the Daily CPI as used under Capital Maintenance in Units of Constant Purchasing Power in terms of the Daily CPI.

All nominal Historical Cost audit reports should start with the following standard statement:

"We confirm that the constant purchasing power (real value) of the entity's capital was not maintained during the last financial period as in its entire existence to date under the nominal Historical Cost basis because 

(1) the stable measuring unit assumption was implemented resulting in constant real value non-monetary items (e.g., shareholders´ equity, taxes, debtors, creditors, profits, losses, salaries, wages, etc.)  not being maintained in real value and 

(2) no account was taken of changes in the inflation/deflation rate with net monetary gains and losses not accounted for in the preparation of the financial reports.

The financial statements balance in nominal value but not in real value."

Current shareholders, creditors, employees, the authorities, prospective investors and all stakeholders should be made fully aware of the fact that it is impossible for the entity to maintain the real value (constant purchasing power) of its capital under the nominal Historical Cost basis.

It is obvious that Historical Cost Accounting´s fundamental mistake - the stable measuring unit assumption - can be used in the Equity Equal to Net Assets Capital Maintenance Fallacy Proof.

‘It is essential to the credibility of financial reporting to recognize that the recovery of the real cost of investment is not earnings — that there can be no earnings unless and until the purchasing power of capital is maintained.’

US FASB Financial Accounting Standard 33 (1979) Paragraph 24

[There is nothing like the above in IFRS. The Americans often seem to be just that little bit better. It is a good thing they have not adopted IFRS as is. :-) ]

The accounting profession generally argues that the fact that it is impossible to maintain the real value or constant purchasing power of capital under the nominal Historical Cost basis under non-zero inflationary conditions is not important since capital is always equal to net assets.

Yes, it is mathematically correct that nominal capital is always equal to net assets under the nominal Historical Cost basis - in nominal monetary units, that is all. However, that is not equal to capital maintenance (see FAS 33 above) as the profession - excluding the US contingent - so fraudulently implies.

Maintaining the constant purchasing power (real value) of capital always was, is and will always be impossible during non-zero inflationary conditions under the nominal Historical Cost basis.

Capital maintenance is impossible under the nominal Historical Cost basis. Period. State it openly in the financial statements and audit report.

The statement in the IFRS Conceptual Framework that "Financial capital maintenance can be measured in nominal monetary units" is thus completely dishonest, false, fake, misleading and fraudulent. That statement should at least state: "Only nominal financial capital maintenance can be measured in nominal monetary units" if IFRS were to be to be honest, true, real, not misleading and valid - in this respect.

Every past, present and future member of the IASB knows that generally no balance sheet prepared under the nominal Historical Cost basis has ever balanced, balances or ever will balance in real value during non-zero inflationary conditions.

Fortunately the IFRS Conceptual Framework also authorizes: "Financial capital maintenance can be measured in units of constant purchasing power".

However, it only works when it is done in terms of the Daily CPI. Using the monthly CPI does not result in real capital maintenance since it has to be done in terms of all changes in the general price level. The general price level does not change monthly as it appears as a result of the original (historical) monthly publication of the CPI figures. It changes daily in all economies. Economic transactions are executed every day of the month. The general price level can - and often does - change more than once a day in hyperinflationary economies.

The absolute proof that daily updating is required? All government inflation-indexed bonds are updated daily in terms of the Daily CPI because they trade daily on the trillion Dollar global sovereign inflation-indexed bond markets, for example US Treasury Inflation Protected Securities or TIPS. They need updated prices daily - not monthly. People and governments trade these inflation-indexed bonds daily, not monthly. The general price level changes at least daily. Daily CPI figures are thus generally available. See the examples on the right margin of this site.

Definition

 A Daily Consumer Price Index is a lagged daily interpolation of the CPI.

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Currency is either a monetary or non-monetary item

Example: 

US Dollar as a monetary item

The US Dollar is a monetary item only inside the US economy. Its nominal price is the nominal interest rate initially set by the Federal Reserve Bank. Its real price inside the US economy is its real interest rate which is the nominal interest rate charged in a contract or transaction minus the daily changing rate of inflation or deflation as indicated by the US Daily Consumer Price Index.US - Daily Reference CPI-Us Official future United States Daily CPI Sept 2016

US Dollar as a non-monetary item

The US Dollar is generally a variable real value non-monetary item in the hands of entities/people outside the US economy. US Dollars outside the US economy are non-monetary items in all other non-US economies where they are held. 

Outside the US economy the US Dollar´s non-monetary price (real value) is mainly determined nano-second by nano-second in the USD 5.6 trillion global 24-hour-per-day, 5-working-day-a-week foreign exchange market in terms of most other currencies as well as in many other street markets, etc. where it is traded on the black market also called the parallel market at the daily changing parallel rate or black market rate. 

The daily rate (general price level) can change more than once a day during hyperinflation. The parallel/black market rate can also change on Saturdays and Sundays. This is not the case in the official foreign exchange market which is closed on Saturday and Sunday. 

This generally applies to other national or regional currencies too.

Hyperinflationary currencies are often not traded internationally.


Nicolaas Smith Copyright (c) 2005-2016 Nicolaas J Smith. All rights reserved. No reproduction without permission.

Negative rates only negative under Historical Cost paradigm

Negative interest rates are only negative under the nominal Historical Cost Accounting paradigm.

The effect of negative interest rates is always positive under the Units of Constant Purchasing Power in terms of the Daily CPI paradigm during deflation.

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An inconvenient accounting truth

No balance sheet has ever balanced in real value under Historical Cost Accounting and no balance sheet ever will while money, subject to inflation and deflation, is used as the unstable unit of measure.

Under IFRS and US GAAP authorised Capital Maintenance in Units of Constant Purchasing Power in terms of the Daily CPI the constant purchasing power of capital is automatically maintained constant in real value in all entities at all levels of inflation, hyperinflation and deflation - ceteris paribus.

Nicolaas Smith Copyright (c) 2005-2016 Nicolaas J Smith. All rights reserved. No reproduction without permission.

Indexation IFRS

International Accounting Standards Board

30 Cannon Street

London EC4M 6XH

United Kingdom

Dear Sirs,

Re: Request for comment on the Exposure Draft ED/2015/3 Conceptual Framework for Financial Reporting

Thank you for the opportunity to comment on the above Exposure Draft.

I would add the Units of Constant Purchasing Power measurement basis as required in IAS 29 Financial Reporting in Hyperinflationary Economies to the Conceptual Framework.

My detailed answers and suggestions are contained in the attached appendix.

Yours sincerely,

Nicolaas Smith

This comment letter is published by the IFRS Foundation HERE under the name Nicolaas Smith. The letter is ID number 1 and appears on page 1 of the table if it is sorted by ID number, or page 4 if it is sorted alphabetically by organisation.

Nicolaas Smith Comment Letter                                 ED/2015/3 Conceptual Framework

Appendix – Response to the Exposure Draft ED/2015/3 Conceptual Framework for Financial Reporting

Question 8—Measurement bases

Has the IASB:

(a) correctly identified the measurement bases that should be described in the Conceptual Framework? If not, which measurement bases would you include and why?

No, the IASB has not identified all the measurement bases that should be described in the Conceptual Framework.

I would include the following improved Units of Constant Purchasing Power measurement bases as required in IAS 29 Financial Reporting in Hyperinflationary Economies in the Measurement Chapter.

Units of Constant Purchasing Power Measurement Bases

1. Historical Cost plus associated net monetary or constant purchasing power gains or losses.

Nominal HC is used only during the current financial period for the measurement of:

(i) Monetary items1 not inflation-indexed daily2 and

(ii) Constant real value non-monetary items3 treated as nominal monetary items.

Examples of constant items treated as monetary items: trade debtors, trade creditors, taxes payable, taxes receivable, other non-monetary payables and receivables, etc.

2. Current Value

                    (i) Fair value for the measurement of variable real value non-monetary items3 updated daily; and

                    (ii) Value in use for the measurement of variable item assets and fulfilment value for variable item liabilities, updated daily.

Nicolaas Smith Comment Letter                                 ED/2015/3 Conceptual Framework

Current value is used for the measurement of variable items and then updated daily to the current (today´s) Daily CPI when the current value measurement is not made on the current (today’s) date.

3. Units of constant purchasing power3 for the measurement of constant real value non-monetary items updated daily.

Net monetary and constant purchasing power gains and losses are constant items.

Daily updated variable and constant items and daily inflation-indexed monetary items are indexed in terms of all changes in the general price level (generally at least daily) in terms of the Daily CPI (the latter always known in advance) or a proxy, normally the daily US Dollar parallel rate or another relatively stable hard currency daily parallel rate, when the general price level is not available, until the current (today's) Daily CPI/parallel rate.

Electronic, automatically updated financial reports is best practice.

Elaboration on the UCPP Measurement Bases

There are two accounting paradigms authorised in IFRS:

1. The Historical Cost paradigm is used (optional) in all IFRSs - except  in IAS 29 and IFRIC 7 - during low inflation, high inflation and deflation.

2. The UCPP paradigm is required during hyperinflation in terms of IAS 29 Financial Reporting in Hyperinflationary Economies and the related IFRIC 7.

Constant items first recognised during UCPP measurement in terms of the Daily CPI are always updated daily - never subject to net constant purchasing power losses or gains since the stable measuring unit assumption4 is never implemented under the UCPP paradigm.

Monetary items inflation-indexed daily in government inflation-linked bonds in terms of the Daily CPI are - generally - not  subject to net monetary gains or losses depending on the terms of the contract.

Nicolaas Smith Comment Letter                                 ED/2015/3 Conceptual Framework

The combined effect of nominal HC measurement and the associated net monetary and constant purchasing power losses or gains under the UCPP paradigm is not nominal.

Net monetary and constant purchasing power gains and losses are constant items updated daily in terms of the Daily CPI to the current (today’s) date once they are accounted.

There is no nominal historical cost concept under the UCPP paradigm since the stable measuring unit assumption is never implemented.

Reasons for inclusion

1. UCPP measurement bases are required and implemented in IAS 29 Financial Reporting in Hyperinflationary Economies and thus have to be dealt with in the measurement chapter.

2. A number of countries, e.g., Zimbabwe, Turkey, Russia, etc.  implemented UCPP measurement bases as required in IAS 29 over the last 26 years since the standard’s authorization. UCPP measurement bases are currently being implemented in Venezuela and Belarus by entities implementing IAS 29. UCPP measurement bases will be implemented in hyperinflationary economies in the future in terms of IAS 29.

Question 8 Measurement bases

Has the IASB:

(b) properly described the information provided by each of the measurement bases, and their advantages and disadvantages? If not, how would you describe the information provided by each measurement basis, and its advantages and disadvantages?

No, since the IASB has not yet identified the measurement bases under the UCPP paradigm required in IAS 29, the Board consequently also has not yet supplied a description of the information provided by each UCPP measurement basis nor its advantages and disadvantages.

Nicolaas Smith Comment Letter                                 ED/2015/3 Conceptual Framework

Information provided by each UCPP Measurement Basis

The information provided by each of the UCPP measurement bases is generally similar to the information described in paragraph 6.47 in the draft CF.

Additionally, UCPP measurement in terms of the Daily CPI provides information

(i) at the current (today´s) general price level;

(i) that presents the real position of an entity's operations: e.g., net monetary losses and gains are not calculated and accounted under the HC paradigm and

(iii) that results in relative stability in the non-monetary economy.

Period-end measuring unit requirement in IAS 29

The requirement in IAS 29, paragraph 8 that  “financial statements … shall be stated in terms of the measuring unit current at the end of the reporting period” is complied with as follows under the UCPP paradigm in terms of the Daily CPI:

The period-end financial reports are prepared at the period-end Daily CPI and thereafter all items are updated to the Daily CPI at the current (today’s) date.

IAS 29 does not require the use of the monthly published CPI. The Daily CPI is also a “measuring unit current at the end of the reporting period.” The Daily CPI is based on the monthly published CPI. IAS 29 can thus be implemented in terms of the Daily CPI and that complies with what is required in IAS 29.

Example: Zimbabwe December 2007 year-end financial reports

The monthly inflation rate for January 2008 was 120.83%.

Nicolaas Smith Comment Letter                                 ED/2015/3 Conceptual Framework

Hanke S H and Kwok A K F 2009 On the Measurement of Zimbabwe’s Hyperinflation Cato Journal 29 2

The Financial Reports prepared at the measuring unit current at 31 December 2007 and then published on, for example, 31 January 2008, were completely meaningless since the general price level was not 20.83%, but 120.83% higher. A value of ZimDollars 100 in the financial reports should have been Zim$ 220.83 at 31 January 2008. A value of 100 Zim$ appeared to be equal to Zim$ 45 to whoever read those reports in Zimbabwe on 31 January 2008.

Financial reports prepared in terms of IAS 29 implementing the monthly published CPI are more and more meaningless the higher and higher the rate of hyperinflation. The South African Institute of Chartered Accountants pointed out that financial reports prepared in terms of IAS 29 during hyperinflation in Zimbabwe were quickly out of date.

Under the UCPP paradigm in terms of the Daily CPI, the 2007 financial reports prepared in terms of the Daily CPI (representing the general price level) at 31 December 2007 would have been published with all items updated by 120.83%: i.e., they would have been updated to the Daily CPI (the general price level) on 31 March 2008, valid only for that day. The next day the values would have been different since the Daily CPI (the general price level) was different.

Those values on 31 March 2008 would have been the real values of all items - at 31 December 2007 stated at the 31 March 2008 general price level - if Zimbabwe were to have implemented IAS 29 in terms of the Daily CPI and their economy would not have imploded on 20 November 2008.

Zimbabwe would have had a relatively stable non-monetary economy under the UCPP paradigm in terms of the Daily CPI during hyperinflation (with no effect of hyperinflation in the non-monetary economy and in all monetary items inflation-indexed daily) similar to what Brazil had during the last 17 weeks till 30 June 1994 (URV from 1 March 1994 to 30 June 1994) in terms of the Unidade Real de Valor daily index and during all the months before (URV from January 1993 to June 1994) when the URV was implemented on a daily basis during hyperinflation in Brazil.

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The Daily CPI is generally known from 15 to 30 days in advance. There are no surprises. The URV was supplied by the Brazilian Central Bank on a daily basis. It was based on the daily USD rate plus three other non-monetary indices were taken into account in the URV’s formulation. It was not a lagged Daily CPI. It was a proxy for the Daily CPI. It was not known in advance. The Daily CPI, on the other hand, is generally a one-to-four-month lagged, daily interpolated, non-monetary index based on the monthly published CPI and is always known in advance because of its lagged nature.

Everybody in a hyperinflationary economy knows the daily parallel rate every day. Street vendors, some of whom have never been to school - know that the general price level changes every day: they all adjust their local currency prices daily. It is common knowledge in a hyperinflationary economy that the general price level (the parallel rate in the absense of a URV or a Daily CPI) changes every day.

All countries issuing government inflation-linked bonds already calculate and publish a Daily CPI which each country uses to value these sovereign inflation-linked bonds on a daily basis since they trade on a daily basis. The formula to calculate a Daily CPI from monthly published CPI data is freely available on the internet.

The formula is based on the one used to calculate Chile’s Unidad de Fomento daily index.

‘The formula for computation of the UF on day t is:

UF t = UF t–1 × (1+ ᷾∏) 1/d

where ∏ is the inflation rate for the calendar month preceding the calendar month in which t falls if t is between day ten and the last day of the month (and d is the number of days in the calendar month in which t falls), and ∏ is the inflation rate for the second calendar month before the calendar month in which t falls if t is between day one and day nine of the month (and d is the number of days in the calendar month before the calendar month in which t falls).’

Shiller R J 1998 Indexed Units of Account: Theory and Assessment of Historical Experience Cowles Foundation Discussion Paper Nº 1171

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The above formula applied to the UF in Chile where the CPI for the current calendar month used to be available on the tenth of the next calendar month. The general case formula for a UF–based Daily CPI is stated as follows:

On day t

DI t = DI t–1 X (1 + ∏) 1/d

where ∏ is the monthly inflation rate for the second calendar month before the calendar month in which t falls if t is on or between day one and the day of publication of the CPI of the previous calendar month (and d is the number of days in the calendar month before the calendar month in which t falls), and ∏ is the inflation rate for the calendar month preceding the calendar month in which t falls if t is on or between the day the CPI for the previous calendar month is published and the last day of the month (and d is the number of days in the calendar month in which t falls).

The Daily CPI within a given calendar month depends on the CPI for each of the three preceding months. For example, the July Daily CPI depends before the day the June monthly published CPI is available on the monthly published CPIs for April and May, and starting with the day the June monthly published CPI is available on the monthly published CPIs for May and June.

Some countries issuing government inflation-linked bonds

1. Argentina
2. Australia
3. Brazil
4. Canada
5. Chile
6. Colombia
7. Finland
8. France
9. Germany
10. Greece
11. Holland
12. Hong Kong

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13. Iceland
14. India
15. Israel
16. Italy
17. Japan
18. Kuwait
19. Mexico
20. New Zealand
21. Portugal
22. Qatar
23. Saudi Arabia
24. South Africa
25. South Korea
26. Spain
27. Sweden
28. Turkey
29. United Arab Emirates
30. United Kingdom
31. United States

Information provided under the UCPP paradigm in terms of the Daily CPI

1. Historical cost plus associated net monetary and constant purchasing power losses or gains.

Information provided in financial reports

(a) Prior period comparative items

(i) Nominal monetary items inflation-indexed daily and associated net monetary losses or gains updated daily to the Daily CPI at the current (today’s) date;

                             

(ii) Constant items treated as nominal items and the associated net constant purchasing power losses or gains updated daily to the Daily CPI at the current (today’s) date.

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(b) During the current financial period

(i) Nominal HC measurement applied to nominal monetary items. The associated net monetary losses or gains are updated daily to the Daily CPI at the current (today’s) date;

(ii) Nominal HC measurement applied to constant items treated as nominal items. The associated net constant purchasing power losses or gains updated daily to the Daily CPI at the current (today’s) date;

(c) Financial period´s financial reports published/accessed after the period-end date:

(i) Nominal monetary items,

(ii) net monetary losses and gains,

(iii) constant items treated as nominal monetary items and

(iv) net constant purchasing power losses and gains

(all items) updated daily from the period-end date to the Daily CPI at the current (today’s) date.

2. Current Value

Information provided

1. Prior period comparative items

Variable real value non-monetary items updated daily to the Daily CPI at the current (today's) date.

2. During current financial period

Variable items measured at current value and then updated daily to the Daily CPI at the current (today’s) date.

3. Last financial period´s financial reports published after the period-end date

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Variable items updated daily from the period-end date to the Daily CPI at the current (today’s) date.

         

3. Units of Constant Purchasing Power

Information provided

1. Prior period comparative items

(i) Constant real value non-monetary items updated daily to the Daily CPI at the current (today’s) date;

(ii) Inflation-indexed monetary items inflation-indexed daily to the Daily CPI at the current (today’s) date.

2. During current financial period

(i) Constant items updated daily to the Daily CPI at the current (today’s) date;

(ii) Inflation-indexed monetary items  measured at their inflation-indexed values at the current (today’s) date.

3. Last financial period´s financial reports published/accessed after the period-end date

(i) Constant items updated daily to the Daily CPI at the current (today’s) date;

(ii) Inflation-indexed monetary items inflation-indexed daily to the Daily CPI at the current (today’s) date.

1. Historical Cost under the UCPP paradigm in terms of the Daily CPI

Advantages

1. The loss or gain in the constant purchasing power of (i) nominal monetary items and (ii) constant items treated as monetary items is accounted as net monetary or constant item losses or gains. The  

Nicolaas Smith Comment Letter                                 ED/2015/3 Conceptual Framework

loss or gain is recognised and accounted resulting in the financial reports presenting the real position of the entity. That is not the case under the HC paradigm.

2. Daily updating of associated constant items (associated net monetary and constant purchasing power losses and gains) to the current (today’s) Daily CPI means that the constant purchasing power (real value) of losses and gains are correctly calculated which is not the case when the monthly published CPI is used in terms of IAS 29. See example below.

Disadvantages

1. There are no disadvantages.

II. Current Value

Advantages

1. The advantages are generally the same as already stated in the CF for current values under the HC paradigm.
2. Daily updating in terms of the Daily CPI of current values of variable items from the date of measurement to the current (today’s) date keeps these values always updated at the current (today’s) general price level during hyperinflation.
3. Daily updating of variable items secures economic stability in the non-monetary economy during hyperinflation
4. Daily updating of variable items removes distortions in the non-monetary economy during hyperinflation.
5. Daily updating of variable items removes many opportunities for corruption in the non-monetary economy during hyperinflation.
6. Daily updating of variable items prevents local-production -destroying price freezes during hyperinflation.
7. Daily updating of variable items promotes local production during hyperinflation.   

Disadvantages

1. There are no disadvantages.

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III. Units of Constant Purchasing Power in terms of the Daily CPI

Advantages

There are a great number of advantages when an entity and especially an entire economy change over from the HC paradigm implementing the stable measuring unit assumption to implementing the real value (constant purchasing power) preserving UCPP paradigm in terms of the Daily CPI under which the stable measuring unit assumption is never implemented.

Difference between Zimbabwe and Brazil during hyperinflation

The difference is like night and day - like Zimbabwe and Brazil during hyperinflation. Zimbabwean accountants implemented IAS 29 in terms of the monthly published CPI from 2000 to March 2008 while Brazilian accountants applied the very successful Unidade Real de Valor daily index from 1992 (or before: I do not know the start date of the URV) to June 1994. The great number of advantages from using a daily index is undeniable: Brazilian accountants used the URV daily index and the country had a relatively stable non-monetary economy during hyperinflation and also used it as the critical part of their Plano Real to stop hyperinflation overnight at no cost on 1 July 1994. In stark contrast, the Zimbabwean economy imploded on 20 November 2008 with the full implementation of IAS 29 in terms of the monthly published CPI by Zimbabwean accountants for 8 years till March 2008, the last month for which the Zimbabwean government published the monthly CPI. IAS 29 in terms of the monthly published CPI had no positive effect in Zimbabwe and Zimbabwean accountants and business people could not stop the economy (the Zimbabwean people) from dollarizing spontaneously while Brazilian accountants kept the Brazilian non-monetary economy relatively stable by using the URV daily index during hyperinflation. The URV daily index also was the pivotal element in Brazil's Plano Real used to stop hyperinflation from one day to the next at no cost on 1 July 1994.  

The difference between Zimbabwe and Brazil was the result of one fundamental concept: daily indexing instead of applying the monthly CPI. Both economies used the UCPP paradigm during hyperinflation. Only Brazil had a relatively stable non-monetary economy because it used a daily index. Zimbabwe imploded and was forced into spontaneous

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dollarization while Brazil stopped hyperinflation from the one day to the next - from 30 June 1994 to 1 July 1994 - at no cost (Brazil avoided

costly and stagnation-inducing dollarization) with the help of the URV daily index.

The higher the rate of hyperinflation, the greater the real value of the advantages of UCPP in terms of the Daily CPI.

These many advantages of daily indexing under the UCPP paradigm during hyperinflation, however, only materialise when the UCPP paradigm is implemented in terms of the Daily CPI - more correctly, in terms of all changes in the general price level. The general price level can change more than once per day during hyperinflation.

The URV was used like a Daily CPI in Brazil in 1994. Brazil did not see its use as the implementation of an accounting model under the UCPP paradigm in terms of a Daily Index. Brazil called it “correcção monetária “, a monetary correction procedure that became the central part of their Plano Real monetary reform plan. In fact, it was the implementation of the UCPP paradigm in terms of a Daily Index (the URV) in an entire economy.

Example

Monthly inflation was 240.06% in December 2007 in Zimbabwe.

Derived URV-based Daily Index

01.12.07  10 481.17

31.12.07  33 080.55  Note the difference in the index in the same month.

Zim$/USD rate based on derived CPI

                                                                      Zim$

01.12.07 104.8114   $100 worth of sales         10 481.14

31.12.07 330.8055   $100 worth of sales         33 080.55

Total sales in December 2007 under IAS 29     43 561.69

in terms of the monthly published CPI

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Total sales in terms of UCPP in terms of the Daily CPI

                                                                  Zim$

$100 * 104.8114 *(330.8055/104.8114) = 33 080.55

$100 * 330.8055                                   = 33 080.55

                                                    Total   66 161.10

The same applies to trade debtors, trade creditors, taxes payable, salaries, wages and all constant items.

The monthly inflation rates in Zimbabwe in 2008 were as follows:

Jan                   120.83%

Feb                   125.86%

Mar                   281.29%

Apr                    212.54%

May                   433.40%

Jun                    839.30%

Jul                  2 600.04%

Aug                 3 190.00%

Sep               12 400.00%

Oct        690 000 000.00%

Nov   79 600 000 000.00%

It is very easy to see why IAS 29 in terms of the monthly published CPI had no stabilising effect in Zimbabwe and why applying a Daily Index easily and always stabilises the non-monetary economy like the use of the URV daily index in Brazil did.

Here follow the advantages of the UCPP paradigm in terms of the Daily CPI in an entire hyperinflationary economy:

Advantages

1. All constant real value non-monetary items are always and everywhere updated in terms of the Daily CPI from the general price level on the day - not simply the month - they are recognised in the entity to the current (today’s) date. Their constant purchasing power thus stays constant: no net constant purchasing power losses or gains. This is not the case when the UCPP paradigm is implemented in terms of the monthly published CPI as IAS 29 has

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been implemented over the last 26 years including for 8 years in Zimbabwe where it had no positive effect during hyperinflation.

2. Stable labour relations/market: salaries and wages updated daily in terms of the Daily CPI: no stable measuring unit assumption.
3. Rents, pensions, transport fees, utilities, fees, etc. updated daily in terms of the Daily CPI.
4. Trade debtors, trade creditors, all other non-monetary payables and all other non-monetary receivables updated daily. The daily

updating of trade debtors, for example, ensures that the constant purchasing power (real value) of these items stay constant over time and the constant purchasing power of profit margins are fully recovered by entities. This has never happened under IAS 29 in terms of the monthly published CPI to date. It is impossible under IAS 29 in terms of the monthly published CPI during hyperinflation.

5. Very improved fiscal situation: taxes, taxes payable and taxes receivable updated daily in terms of the Daily CPI.
6. Capital and all other items in shareholders’ equity updated daily in terms of the Daily CPI.

General economic advantages using the UCPP paradigm in terms of the Daily CPI

1. Eliminates corruption via unfair, incredibly lucrative arbitrage opportunities for corrupt government officials, their families and friends which often happen during hyperinflation.
2. Eliminates general arbitrage distortions in the economy: See Venezuela and Zimbabwe for examples where it did not happen and it is not happening today because of the use of the monthly publised CPI under IAS 29.
3. Eliminates “money burning” as implemented in Zimbabwe.
4. Maintains local manufacturing and industrial production.
5. Reduces imports.
6. Strengthens the local currency.
7. Eliminates price freezes.
8. Promotes economic and financial stability.
9. Results in zero effect of hyperinflation during hyperinflation when all monetary items in the banking system are inflation-indexed daily.
10. Eliminates hoarding during hyperinflation.
11. Promotes social stability.
12. Reduces actual hyperinflation over time.

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13. Promotes the creation of new employment opportunities.
14. Promotes economic growth via economic stability in all sectors except the money supply with the hyperinflationary effect being eliminated with daily inflation-indexing of all monetary items.
15. UCPP in terms of the Daily CPI will always stabilise a  hyperinflationary economy - with an IFRS (IAS 29 implemented in terms of the Daily CPI, the use of which is inferred in the standard) - at no cost over a short period of time similar to the use of the very successful URV daily index in Brazil from 1992 to 1994.

Disadvantages

There are no disadvantages.

Hurdles (not disadvantages) for UCPP measurement in terms of the Daily CPI during hyperinflation

1. A number of different exchange rates for the US Dollar can be used by the government: see Venezuela today.
2. No CPI published (as happened in Zimbabwe - resulted in a change to IFRS 1). Entities have to use the parallel rate instead, thus not a real hurdle.
3. A problem everywhere during hyperinflation: the USD parallel rate is often declared illegal by the government and using it can even result in prison sentences for CFOs and owners: see Angola, Zimbabwe and Venezuela.
4. The CPI can fall too far behind the parallel rate during severe hyperinflation: see Zimbabwe. The solution is to change over from a Daily CPI based on the monthly published CPI to a URV-based daily index based primarily on the USD parallel rate or simply use the parallel rate.

Basis

Authorization for daily indexing is derived from the requirement of UCPP measurement bases in IAS 29 and the fact that constant purchasing power in all measured items (including Profit & Loss and Other Comprehensive Income items) can only be achieved when all changes in the general price level are followed, i.e., at least daily.

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The UCPP accounting paradigm is optional during low inflation, high inflation and deflation in terms of the CF (2010), paragraph 4.59 (a) [originally the Framework (1989), paragraph 104 (a)] which states: “Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power.” The UCPP paradigm is required during hyperinflation in terms of IAS 29.

The UCPP paradigm is optional during low inflation, high inflation, hyperinflation and deflation in terms of particular countries´ national accounting standards, e.g. in Portugal - originally in the Plano Oficial de Contabilidade (1989).

The UCPP paradigm is optional during hyperinflation under US GAAP.

The UCPP paradigm is a departure from Historical Cost Accounting (the use of the stable measuring unit assumption).

The calculation and accounting of net constant purchasing power gains or losses result from the acceptance of HC contracts under the UCPP paradigm. There will be no net constant purchasing power gains or losses once there are no more HC contracts under the UCPP paradigm.

The stable measuring unit assumption is never implemented under the UCPP paradigm since net monetary gains and losses and net constant item gains or losses are always calculated and accounted.   

The restatement approach or method as set out in IAS 29, Daily CPI indexation, constant dollar, price-level accounting, price-level adjustment, monetary correction, inflation-adjustment, inflation-indexing, dollar indexing, “correcção monetária”, the use of the Unidad de Fomento Daily CPI in Chile since 1967, the use of the Real Value Daily CPI in Colombia, the use of the very successful Unidade Real de Valor daily index in Brazil, the daily measurement of more than $3 Trillion in government inflation-indexed bonds in terms of the Daily CPI in many countries worldwide, etc. were/are all implementations under the UCPP paradigm although not all nations realized they were implementing an accounting model, namely the UCPP model. It was mostly seen as simply monetary correction implemented by the monetary authorities at the central bank instead of UCPP, an accounting model.

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Notes

1 The definition of monetary items is critical under the UCPP paradigm since  non-monetary items are defined as all items that are not monetary items.

Definition of monetary items: Monetary items constitute the money supply.

When an item is included in the Central Bank´s aggregate of the money supply, then it is a monetary item. Otherwise it is a non-monetary item.

Trade debtors, trade creditors, salaries, wages, pensions, taxes, taxes payable, taxes receivable, etc. are not included in the money supply. They

are not monetary items. They are constant real value non-monetary items. The implementation of the stable measuring unit assumption under the HC paradigm allows these items to be treated as if they were monetary items under that paradigm.

2 Monetary items are generally stated in nominal value. However, many countries´ governments issue sovereign inflation-indexed bonds. The world market in these bonds amounts to more than USD 3 trillion. Chile  has been inflation-indexing more than 25% of its money supply for a number of years. All these countries already have Daily CPIs that they use to inflation-index these bonds on a daily bases since they trade on a daily basis.

3 There are three basic, fundamentally different economic items under the UCPP paradigm:

1. Monetary items

2. Variable real value non-monetary items

3. Constant real value non-monetary items

Monetary items

Definition Monetary items constitute the money supply.

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Examples

Bank notes and coins

Bank current accounts

The capital amounts of:

Inflation-linked bonds

Money loans

Mortgage bonds

Government Bonds

Commercial Bonds

Treasury Bills

Consumer loans

Bank loans

Car loans

Student loans

Credit card loans

All capital and money market items

Variable real value non-monetary items

Definition Variable items are non-monetary items with variable real values over time.

Examples

Property

Freehold land

Buildings

Plant

Equipment

Investment property

Other intangible assets

Patents

Trademarks

Licences

Investments in associates

Joint ventures

Available–for–sale investments

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Quoted and unquoted shares

Inventories

Raw materials

Work–in–progress

Finished goods

Foreign exchange

Commodities

Precious metals

Constant real value non-monetary items

Definition Constant items are non-monetary items with constant real values over time.

Examples

All Profit and Loss and Other Comprehensive Income statement items

Revenue

Cost of sales

Gross Profit

Investment revenues

Other gains and losses

Salaries

Wages

Rentals

Net monetary loss

Net monetary gain

Net constant item loss

Net constant item gain

Share of profits of associates

Changes in inventories of finished goods and work in progress

Raw materials and consumables used

Depreciation and amortisation expenses

Employee benefits expenses

Distribution expenses

Marketing expenses

Occupancy expenses

Administration expenses

Finance costs

Bank Charges

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Borrowing costs

Consulting expenses

Royalties

Other expenses

Profit before tax

Income tax expenses

Profit for the year from continuing operations

Profit for the year from discontinued operations

Net profit for the year

Comprehensive income

Deferred tax assets

Finance lease receivables

Trade and other non–monetary debtors

Provision for doubtful debts

Current tax assets

Issued share capital

Share premiums

Share discounts

Capital reserves

General reserves

Properties revaluation reserve

Investments revaluation reserve

Equity–settled employee benefits reserve

Hedging reserve

Foreign currency translation reserve

Retained earnings

Retained losses

Retirement benefit obligation

Deferred tax liabilities

Provisions

Employee benefits provision

Provision for rectification work

Provision for warranties

Onerous lease contract provision

Restructuring and termination costs provision

Decommissioning costs provision

Deferred Revenue

Trade and other non–monetary creditors

Current tax liabilities

Interest paid

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Interest received

Royalties

Fees

Short term employee benefits

Pensions

Dividends payable

Dividends receivable

Taxes payable

Taxes receivable

4  ‘The Measuring Unit principle: The unit of measure in accounting shall be the base money unit of the most relevant currency. This principle also assumes the unit of measure is stable; that is, changes in its general

purchasing power are not considered sufficiently important to require adjustments to the basic financial statements.’

Walgenbach P H Dittrich N E and Hanson E I 1973 Financial Accounting 429

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