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Tuesday, 3 November 2009

The net monetary gain or loss conundrum

SA accountants have to calculate the net monetary loss or gain from holding monetary items when they choose the Constant ITEM Purchasing Power Accounting model in terms of the International Accounting Standards Board´s Framework, Par. 104 (a) and measure financial capital maintenance in units of constant purchasing power in the same way as the IASB currently in terms of IAS 29 requires its calculation and accounting during hyperinflation.

There are net monetary losses and net monetary gains during low inflation too, but they are not required to be calculated when accountants choose the traditional Historical Cost Accounting model.

It is an inexplicable contradiction that net monetary gains and losses are required by the IASB to be calculated and accounted during hyperinflation but not during non-hyperinflationary periods, especially when the IASB approved alternative to HCA, namely CIPPA does require their calculation and accounting during low inflation.

Kindest regards,

Nicolaas Smith