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Tuesday, 8 September 2009

The art of turning capital into CASH in a flash

SA accountants are great performing artists. They get their biggest inspiration from the American Institute of Certified Public Accountants´ definition of accounting that starts with the words: The art of …

SA accountants have perfected the art of turning capital into CASH in a flash. They wait patiently for SA entrepreneurs to start companies to increase the wealth of the nation. Companies need accountants to do their books. SA accountants confidently step forward and state: Trust me, I’m an accountant.

SA entrepreneurs have to use some of the existing wealth of the nation to serve as the investment capital of their companies.

The entrepreneurs entrust the accounting of this investment capital to their trusted accountants. SA accountants confidently value this capital in nominal monetary units on the basis that the International Accounting Standards Board states that it is humanly possible to measure financial capital maintenance in nominal monetary units during low inflation. (It isn´t.)

No-one has told SA accountants up till now that this is only possible at zero inflation. They thus happily value SA entrepreneurs´ capital in nominal monetary units and instantaneously turn that hard earned capital into CASH.

We all know what happens to CASH: its real value is destroyed by inflation.

SA accountants unknowingly destroy the real value of shareholders´ equity never updated at a rate equal to the inflation rate. This is the case in all SA companies which do not have 100% of all contributions to equity (excluding the revaluation reserve) invested in variable item fixed assets that can be or are revalued via the revaluation reserve.

SA accountants do their famous stable measuring unit assumption trick and instantaneously turn SA entrepreneurs´ capital into plain old CASH the very first instant they account that capital in nominal monetary units during low inflation. Real value destroyed forever at a rate equal to the rate of inflation or for as long as they carry on with their infamous stable measuring unit assumption.

Snap: nominal monetary units, and it’s done: Capital to CASH in a flash.

Kindest regards,

Nicolaas Smith

PS The real value of R 1 000 000 in Retained Profits contributed on 1st Jan 1981 which are still in Retained Profits today but updated at the rate of inflation: R 14 882 000. Real value destroyed since 1981 R13 882 000.

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