SA accountants at Johannesburg Stock Exchange listed companies as well as at non-listed companies doing their accounts in terms of IFRS generally choose, in terms of Par 104 (a), to measure financial capital maintenance in nominal monetary units implementing the traditional HCA model which includes their very destructive stable measuring unit assumption during low inflation.
Issued Share Capital, Share Premium Account, Capital Reserves, Retained Earnings, all other items in Shareholders´ Equity, all items in the Income Statement, Provisions, etc. are non-monetary items. The IASB confirms this by clearly defining them as such in IAS 29. These non-monetary items are obviously constant items with constant real values since they can be measured in units of constant purchasing power in terms of the Framework, Par 104 (a) in order to implement a constant purchasing power financial capital maintenance concept at all levels of inflation and deflation.
This is done as follows: The monthly change in the annual CPI is continuously applied to the measurement of all constant items in a double entry accounting model during low inflation and deflation. It includes calculating and accounting the net monetary loss or gain from holding monetary items during the accounting period. Net monetary losses and gains are constant items once calculated and accounted in the Income Statement. Variable items are valued in terms of IFRS during low inflation and deflation while monetary items are stated at their original monetary values during the current accounting period under all accounting models and at all levels of inflation and deflation. Both constant and variable items are valued in units of constant purchasing power during hyperinflation in terms of IAS 29 Financial Reporting in Hyperinflationary Economies.
Copyright © 2010 Nicolaas J Smith
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