I will have a chart about SA inflation in my second book that I am currently working on.
I show different aspects of inflation.
I have the chart on normal charting paper, at the moment, so I cannot show the chart here.
The one chart shows cumulative inflation of 162% since April 1994.
The other two charts are
(1) Percentage Real Value Destroyed since April 1994 and
(2) Percentage Real Value Left since April 1994 - the inverse of (1).
These two charts cross after 11 years at 50% with average annual inflation of 6% (Mboweni at the SARB).
It took SA accountants implementing the stable measuring unit assumption 11 years to destroy 50% of the real value of all the retained earnings SA companies had in April 1994 and that remained in those companies for those 11 years as well as 50% of the issued share capital of all SA companies with no fixed assets during those 11 years.
62% of the real value of all the retained earnings SA companies had on April 1994 and that remained in those companies till May 2009 and 62% of real value of the issued share capital of all SA companies with no fixed assets during the period April 1994 to May 2009 have been destroyed by SA accountants implementing the stable measuring unit assumption.
During the last 12 years of white apartheid rule with averge annual inflation at 12% it took only 5 years to destroy 50% of a company´s equity that remained in the company for that those 5 years. A much worse situation under apartheid.
SA accountants destroy the myth that companies have infinite life times under the Historical Cost paradigm with their very destructive stable measuring unit assumption.
The concept of companies´ infinite lives will be restored under the Constant Purchasing Power paradigm.
Kindest regards,
Nicolaas Smith
You're effectively blaming accountants for inflation because they don't account for it, it being a notional amount that differs from product to product, region to region. If I kept ten rand under my pillow and spend it a year later, I'll still get ten rand worth of goods.
ReplyDeleteHi Ghulam,
ReplyDeleteThank you for your comment.
Yes, if you kept ten rand under your pillow and spend it a year later, you will still get ten rands worth of goods.
But, you will get fewer goods.
Still ten rand in nominal value, but only R9.31 in real value. Inflation will have destroyed 69 cents of the real value of your ten rand.
See inflation on Wikipedia:
http://en.wikipedia.org/wiki/Inflation
Kindest regards,
Nicolaas Smith