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Monday, 10 March 2008

Inflation´s destruction of the SA non-monetary economy can be stopped by SA accountants.

It was once generally accepted that the world was flat.

It is now generally accepted that Robert Mugabe´s policies destroyed the Zimbabwean economy.

In time people will come to understand that it was the combination of inflation and the stable measuring unit assumption that destroyed the Zimbabwean economy.

That same combination is currently destroying 9.4% per annum of all monetary items in South Africa as well as 9.4% per annum of the real value of Retained Income in all South African companies.

At continuous 9.4% per annum inflation all the real value of all Retained Income that remain in SA companies for the next 8 years will be completely destroyed. Today´s Retained Income balances will be there in 8 years time but they will be worth nothing - all else being equal.

When SA revokes the stable measuring unit assumption, this destruction of constant real value non-monetary items currently NEVER updated can be stopped.

Any SA company can revoke the stable measuring unit assumption and stop this destruction.

The International Accounting Standard Board authorised the updating of non-monetary items in IAS 29 in 1989.

If SA companies/accountants do not revoke the stable measuring unit assumption and inflation keeps on rising, then the combination of high inflation and the stable measuring unit assumption will definitely destroy the SA economy - exactly as it did in Zimbabwe over the last 14 years of hyperinflation in that country.

Three years of continuous 26% inflation is hyperinflation as defined by the IASB.

At the moment this destruction is taking place at 9.4% per annum. That means that the real value of all constant real value non-monetary items today that are never updated (eg. retained income) will see 100% of their real value destroyed over the next 8 years. The accounting values will still be in the books, but they will have zero real value - like the accounting values in Zimbabwean company accounts not updated.