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Friday, 26 June 2009

Difference between basic and inflation accounting

The Constant Purchasing Power inflation accounting model required by the IASB in IAS 29 is in contrast to the Constant Item Purchasing Power basic accounting model approved by the IASB in the Framework, Par. 104 (a) as an alternative to the real value destroying traditional basic Historical Cost Accounting model also approved in Par. 104 (a).

Constant Item Purchasing Power Accounting requires that ONLY constant items (instead of constant AND variable non-monetary items in the case of CPP inflation accounting) are inflation-adjusted by means of the CPI during non-hyperinflationary periods for the purpose of implementing a constant purchasing power capital concept of invested purchasing power, a constant purchasing power financial capital maintenance concept and a constant purchasing power profit or loss determination concept.

Variable items are valued in terms of IFRS or SA GAAP for primary valuation purposes during non-hyperinflationary periods. Monetary items are always stated at their original nominal values during the current accounting period.