Monday, 19 July 2010

CPI + CIPPA = Zero destruction

The significant destruction of the real value of SA companies´ and banks´ retained profits never maintained constant, unknowingly done by SA accountants implementing their very destructive stable measuring unit assumption during low inflation would have been impossible to stop without the Consumer Price Index. The CPI and financial capital maintenance in units of constant purchasing power [Constant Item Purchasing Power Accounting or CIPPA] make it easy to fix the problem and to stop our accountants destroying about R167 billion each and every year in the SA real economy.

When our accountants freely start measuring financial capital maintenance in units of constant purchasing power as the IASB-authorized them to do 21 years ago in the Framework, Par 104 (a), then they will maintain all constant items generally never maintained in the SA economy for an unlimited period of time by updating them in terms of the change in the CPI instead of destroying their real values at a rate equal to the inflation rate as they are unknowingly doing right now. They would do that even in companies with no fixed assets at all. The "equivalent revaluable fixed assets requirement" is only applicable with the stable measuring unit assumption.

Copyright © 2010 Nicolaas J Smith

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