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Saturday, 8 August 2009

Net monetary gain or loss conundrum (for dummies :-)

The world´s top accounting authority (the International Accounting Standards Board or just the IASB) orders you to calculate what you lose or gain in real value from actually keeping cash or loans in your business during hyperinflation.

During normal low inflation they pretend that they are very dumb and just ignore the fact that you ALSO gain or lose real value from keeping cash or loans in your business - during low inflation.

But, they give you a choice of doing your accounting properly and not destroying the profits you make simply by the way you do normal traditional historical cost accounting.

If you pick this alternative, they tell you again - correctly - to calculate the gain or loss from keeping cash or loans in your business - now during actual normal low inflation.

They are thus a bit of a joke.

Under hyperinflation you MUST calculate this loss or gain from cash and loans.

But, during low inflation, you don'´t have to (and no-one does) - unless you pick the other, much better and correct way of doing your accounts (which NO-ONE picks).

Huh??

So, what is their story?

Are there losses and gains from keeping cash and loans in your business?

If yes, as it actually is, why are we only allowed to calculate and show this during hyperinflation and not with normal historical cost accounting during low inflation?

But, if we pick their much better and correct alternative, then we suddenly can calulate these monetary losses and gains - during low inflation?

It is one helluva big puzzle.

So you ask, what is the correct thing to do?

Pick the other better and correct way of doing your accounts (they - the BIG ACCOUNTING BOSSES approved it 20 years ago) with which you do not AUTOMATICALLY destroy your capital and profits you keep in your company as your accountant does right now with traditional Historical Cost Accounting during low inflation.

Here is the link for more info.

(New book coming soon - watch this space :-) [This time you´ll have to pay for it.]

If you want to email me (I´m available :-) realvalueaccounting@yahoo.com

Kindest regards,

Nicolaas Smith