Monday, 12 October 2009

Net monetary gains and losses


Net monetary gains and losses are calculated and accounted during hyperinflation as required by IAS 29 Financial Reporting in Hyperinflationary Economies and with the measurement of financial capital maintenance in units of constant purchasing power in terms of the IASB´s Framework, Par. 104 (a) during low inflation. Net monetary gains and losses are not required to be computed under the traditional Historical Cost Accounting model although it has been stated that it can be done.

Computing the gains or losses from holding monetary items can be done and the information disclosed when the books are maintained on a historical-cost basis.

Harvey Kapnick, Chairman of Arthur Anderson & Company, Value based accounting: Evolution or revolution, Saxe Lecture, 1976, Page 6.

This omission to compute the gains and losses from holding monetary items is a consequence of the stable measuring unit assumption.

The Measuring Unit principle: The unit of measure in accounting shall be the base money unit of the most relevant currency. This principle also assumes the unit of measure is stable; that is, changes in its general purchasing power are not considered sufficiently important to require adjustments to the basic financial statements.

Paul H. Walgenbach, Norman E. Dittrich and Ernest I. Hanson, (1973), Financial Accounting, New York: Harcourt Brace Javonovich, Inc. Page 429.

Kindest regards,

Nicolaas Smith

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