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Tuesday 30 November 2010

Difference between severe hyperinflation and a monetary meltdown

The monetary economy (the total real value of a fiat money supply) can disappear completely. It can be totally eroded like in the case of the Zimbabwe Dollar, not simply as a result of hyperinflation, but, as a result of a total monetary meltdown after a period of severe hyperinflation. Hyperinflation only erodes the real value of the hyperinflationary currency extremely rapidly. Hyperinflation has no effect on the real value of non-monetary items. All non-monetary items maintain their real values when they are updated daily in terms of a daily non-monetary index normally based on the daily USDollar exchange rate as Brazil did during 30 years of very high and hyperinflation. The stable measuring unit assumption (Historical Cost Accounting) unnecessarily erodes the real value of constant real value non-monetary items, e.g. salaries and wages not updated daily during hyperinflation, as fast as hyperinflation erodes the real value of the local currency and other monetary items, e.g. all loans stated in the local currency. A monetary meltdown erodes all real value only in the monetary economy; i.e. in the money supply. The stable measuring unit assumption (HCA) unnecessarily erodes the real value of all constant real value non-monetary items never maintained during inflation and hyperinflation.

Hyperinflation is not always stopped with first a period of severe hyperinflation in the final stage and then a complete monetary meltdown. Hyperinflation was successfully overcome by various countries, e.g. Turkey, Brazil and Angola, without dollarization or a monetary meltdown. However, severe hyperinflation would normally lead to a complete monetary meltdown as happened in 2008 in Zimbabwe. 

Brazil actually grew their non-monetary economy in real value during 30 years of very high and hyperinflation of up to 2000 per cent per annum from 1964 to 1994 and never had severe hyperinflation followed by a complete monetary meltdown at the end. Brazil managed to have positive GDP growth during 30 years of hyperinflation because the various governments during those three decades supplied the population with a daily non-monetary index based almost entirely on the daily US Dollar exchange rate with their functional currency which was used to update all non-monetary items (variable and constant items), e.g. equity, trade debtors, trade creditors, salaries payable, taxes payable, etc., in the economy daily.

Brazil would not have been able to do that if they had applied the IASB´s IAS 29 Financial Reporting in Hyperinflationary Economies simply because IAS 29 does not provide for continuous daily updating of all nonmonetary items during hyperinflation. IAS 29 was published in 1989. IAS 29 does not provide for continuous daily updating in terms of the US Dollar parallel rate. IAS 29 simply requires restatement of Historical Cost and Current Cost Accounting financial statements during hyperinflation applying the monthly Consumer Price Index (generally available a month after the current month) to make these financial statements "more meaningful". It is not the intention of IAS 29 to, and in it´s current form it cannot, stop the continuous daily rapid erosion of the real value of constant real value non-monetary items (e.g. salaries, wages, rentals, etc.) as Brazil did for 30 years of hyperinflation generating positive economic growth because IAS 29 does not provide for the continuous daily updating of constant items in terms of the parallel USDollar reate. This daily very rapid erosion is caused, not by hyperinflation, but, by the implemention of the stable measuring unit assumption (HCA) during hyperinflation. Applying the monthly CPI a month after the current month is very ineffective during hyperinflation as far as salaries, wages, rentals, positive economic growth, economic stability, the maintenance of internal demand and the continuous daily maintenance of the real value of these items are concerned. All non-monetary items have to be updated daily in terms of the parallel USDollar rate during hyperinflation as Brazil did for 30 years. That is financial capital maintenance in units of constant purchasing power as authorized in IFRS in the Framework, Par 104 (a) during hyperinflation.

The Framework, Par. 104 (a) states:

"Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power."

The IFRS authorized financial capital maintanence in units of constant purchasing power during low inflation and deflation (Constant ITEM Purchasing Power Accounting - CIPPA) under which only constant real value non-monetary items (not variable real value non-monetary items) are updated monthly in terms of the CPI during low inflation and deflation) as well as hyperinflation (Constant Purchasing Power Accounting - CPPA) whereunder all non-monetary items - constant and variable real value non-monetary items - are updated daily in terms of the US Dollar parallel rate). IFRS authorized it at all levels of inflation and deflation.

The stable measuring unit assumption (HCA or finanancial capital maintenance in nominal monetary units, also authorized in IFRS in the Framework, Par 104 a )  assumes there was, is and never ever will  be inflation or hyprinflation as far as the valuation of constant real value non-monetary items (e.g. equity, trade debtors, trade creditors, taxes payable, etc) never maintained are concerned. The stable measuring unit assumption (HCA) assumes that money was forever in the past, is and will always be perfectly stable under any level of inflation, hyperinflation and deflation.

Various authoritative commentators in the accounting profession are requesting the IASB for a fundamental revision of IAS 29.

Severe hyperinflation is defined as a period at the end of completely uncontrolled hyperinflation when exchangeability between the hyperinflationary functional currency and most relatively stable foreign currencies does not exist. However, at least one exchangeability has to exist for prices to be established in the hyperinflationary functional currency. Severe hyperinflation is only possible when there is exchangeability with at least one relatively stable foreign currency in order for prices to continue to be set in the hyperinflationary functional currency in terms of this final exchangeability. The one exchange rate that lasted till the end of hyperinflation in Zimbabwe was the Old Mutual Implied Rate (OMIR).

“The ratio of the Old Mutual share price in Harare to that in London equals the Zimbabwe dollar/sterling exchange rate." p8  1

Severe hyperinflation stops the moment exchangeability between the currency and all foreign currencies does not exist.

“Zimbabwe’s hyperinflation came to an abrupt halt. The trigger was an intervention by the Reserve Bank of Zimbabwe. On November 20, 2008, the Reserve Bank’s governor, Dr. Gideon Gono, stated that the entire economy was “being priced via the Old Mutual rate whose share price movements had no relationship with economic fundamentals, let alone actual corporate performance of Old Mutual itself” (Gono 2008: 7–8). In consequence, the Reserve Bank issued regulations that forced the Zimbabwe Stock Exchange to shut down. This event rapidly cascaded into a termination of all forms of non-cash foreign exchange trading and an accelerated death spiral for the Zimbabwe dollar. Within weeks the entire economy spontaneously “dollarized” and prices stabilized.” p 9-10  2

There was severe hyperinflation in Zimbabwe while there was exchangeability (prices could still be set in the ZimDollar) with at least one relatively stable foreign currency – the British Pound in this case as made possible via the OMIR. When this last exchangeability stopped it was not possible to set prices in the ZimDollar any more and severe hyperinflation stopped: no exchangeability means no severe hyperinflation. That was a monetary meltdown. The ZimDollar had no value as from that moment.

No exchangeability with all relatively stable foreign currencies means no exchange rates which means no severe hyperinflation (no prices being set in the local currency) and vice versa: no exchange rates with all relatively stable foreign currencies means no exchangeability which means no severe hyperinflation (no prices being set in the local currency).

No prices being set in the local currency means monetary meltdown: the total money supply and all money and other monetary items stated in the local currency have no value.

The real or non-monetary economy (houses, properties, buildings, infrastructure, inventories, finished goods, consumer goods, trademarks, goodwill, logos, copyright, trade debtors, trade creditors, royalties payable, royalties receivable, taxes payable, taxes receivable, all other non-monetary payables, all other non-monetary receivables, etc,) can not be eroded by hyperinflation or a total monetary meltdown: inflation is always and everywhere a monetary phenomenon. Inflation and hyperinflation have no effect on the real value of non-monetary items.

The International Accounting Standards Board is currently requesting comment letters on their Exposure Draft Severe Hyperinflation.

1,2 Hanke, S. H. and Kwok, A. K. F., On the Measurement of Zimbabwe’s Hyperinflation, Cato Journal, Vol. 29, No. 2 (Spring/Summer 2009), pp. 353-64


© 2005-2010 by Nicolaas J Smith. All rights reserved. No reproduction without permission.


Thursday 25 November 2010

Four accounting models authorized under IFRS

A: Financial capital maintenance in nominal monetary units during low inflation and deflation: traditional Historical Cost Accounting (see the Framework, Par 104 (a))


B: Financial capital maintenance in units of constant purchasing power; i.e. Constant ITEM Purchasing Power Accounting (CIPPA) under which ONLY constant real value non-monetary items (NOT variable items) are inflation-adjusted during low inflation and deflation. This is NOT Constant Purchasing Power Accounting which is an inflation-accounting model required ONLY during hyperinflation under which ALL non-monetary items – BOTH variable and constant items – are inflation-adjusted. (see the Framework, Par 104 (a)). This accounting model is unique to IFRS. It is not authorized under US GAAP.

IFRS also specifically require

C: Current Cost Accounting when an entity selects physical capital maintenance in terms of the Framework, Par 102 and 104 (b).

IAS 29 Financial Reporting in Hyperinflationary Economies requires

D: Constant Purchasing Power Accounting, i.e. inflation-accounting under which all non-monetary items – both variable and constant items – are inflation-adjusted ONLY during hyperinflation (different from the above Constant ITEM Purchasing Power Accounting authorized in Par 104 (a) during LOW inflation and deflation under which ONLY constant items – NOT variable items – are inflation-adjusted during LOW inflation and deflation).
© 2005-2010 by Nicolaas J Smith. All rights reserved. No reproduction without permission.


Friday 19 November 2010

Three economic items

Science is simply common sense at its best - that is, rigidly accurate in observation, and merciless to fallacy in logic. Thomas Huxley

The economy consists of economic entities and economic items.

Economic items have economic value. Accountants do not simply record what happened in the past. Accountants are not simply scorekeepers. Accountants value economic items every time they account them. Utility, scarcity and exchangeability are the three basic attributes of an economic item which, in combination, give it economic value.

It is generally accepted that there are only two basic, fundamentally different economic items in the economy; namely, monetary and non-monetary items and that the economy is divided in the monetary and non-monetary or real economy. That is a fallacy.

The three fundamentally different basic economic items in the economy are:

a) Monetary items
b) Variable real value non-monetary items
c) Constant real value non-monetary items

The economy consequently consists of not just two – the monetary and non-monetary economies, but, three parts:

1. Monetary economy

The monetary economy within an economy or monetary union consists of functional currency bank notes and coins (which generally make up about 7% of the overall money supply) and other functional currency monetary items, e.g. bank loans, savings, credit card loans, car loans, home loans, student loans, consumer loans, commercial and government bonds and other functional currency monetary items making up the fiat money supply created in the banking system by means of fractional reserve banking.

2. Variable item non-monetary economy

The variable item economy is made up of non-monetary items with variable real values over time; for example, cars, groceries, houses, factories, property, plant, equipment, inventory, mobile phones, quoted and unquoted shares, foreign exchange, finished goods, raw material, etc.

3. Constant item non-monetary economy

The constant item economy consists of non-monetary items with constant real values over time, e.g. salaries, wages, rentals, all other income statement items, balance sheet constant items, e.g. issued share capital, share premium, share discount, capital reserves, revaluation reserve, retained profits, all other items in shareholders´ equity, provisions, trade debtors, trade creditors, taxes payable, taxes receivable, all other non-monetary payables and all other non-monetary receivables, etc.

The variable and constant item non-monetary economies in combination make up the non-monetary or real economy. The real and monetary economies constitute the economy.

© 2005-2010 by Nicolaas J Smith. All rights reserved. No reproduction without permission.

Fin24 15-3-11

Monday 15 November 2010

Fiat money has real value and is legally convertible

All fiat money is created out of nothing: out of thin air. It is, however, backed by all - the sum total of - the underlying value systems in an economy, namely sound governance, sound economic policies, sound monetary policies, sound industrial policies, sound commercial policies, etc. Positive annual inflation indicates the excess of fiat money created in the banking system.

Fiat money is used every day by 6 billion people to buy anything and everything in the economy. Fiat money has real value. All monetary units in the world are fiat money. Every person knows exactly what he or she can buy with 1 or 10 or 100 or 1000 units of fiat money in his or her economy – today. Everyone also knows that the real value of fiat money is eroded over time in an inflationary economy and increases over time in a deflationary economy.

Yes, the special bank paper that fiat bank notes is made of and the metals that fiat bank coins are made of have almost no intrinsic value as compared to the real value of the actual gold or actual silver in gold and silver coins of commodity money in the past. That is not a logical reason to state that fiat money has no value. Every fiat monetary unit´s real value is determined by what it can buy today in an average consumer basket of goods and services. That generally changes every month.
Fiat money is money which generally has a monthly changing real value. Only the actual fiat bank notes and coins have insignificant intrinsic values. Fiat bank notes and coins constitute only about 7% of the US money supply.

All fiat monetary units – whether notes and coins or simply electronically represented virtual values - are legal tender in their respective economies.

All fiat functional currencies within economies have international exchange rates with the fiat functional currencies of other economies.

The fact that fiat money is not legally convertible into gold on demand as it was done in the days of the gold standard, is made irrelevant by the indisputable fact that fiat money is legal tender. Fiat money is used to buy gold. The fact that fiat money is not legally convertible into gold - an administrative process - is true: it is a fact. That does not negate the fact that fiat money has real value, the change of which is indicated monthly in the change in the Consumer Price Index.

The fact that fiat money has real value is so mainstream - 6 billion people know it and confirm it daily - 365 days a year - by using fiat money to buy and sell everything in all economies. The fact that fiat money has real value is confirmed once a month by about 155 to 200 economies world wide when monthly inflation indexes are published indicating the change in the real value of fiat money. It is thus misleading to imply that because it is a fact that fiat money can not administratively be converted at the central bank or any other bank into gold, that fiat money has no value.

It is an indisputable mainstream fact that fiat money has real value despite the fact that it is not legally convertible into gold on demand and that the bank paper bank notes are made of and metals bank coins are made of have no intrinsic value whereas historically gold and silver coins had intrinsic values equal to the real value of the gold and silver they were made of.

The numerous publications of CPI values world wide are the absolutely creditable references to the fact that fiat money has real value. Statistics authorities are generally creditable sources.
© 2005-2010 by Nicolaas J Smith. All rights reserved. No reproduction without permission.

Friday 12 November 2010

The silliest idea currently going around

The silliest idea currently going around:

Quantitative easing would lead to hyperinflation.

© 2005-2010 by Nicolaas J Smith. All rights reserved. No reproduction without permission.

No currency wars within the European Monetary Union

What the world needs is one world one currency.

If the world economy was invented today, no-one would have more than one currency for the whole world.

There are no currency wars within the European Monetary Union or among the different states in the United States of America.

The final solution would be one fiat currency with a constant real value, i.e. zero inflation.

For that to happen the eternally elusive universal unit of real value has to be defined.

Whether that is possible is not clear yet.
Interesting times ahead.


© 2005-2010 by Nicolaas J Smith. All rights reserved. No reproduction without permission.

Wednesday 10 November 2010

Gold is not money

Gold can only be money if it fulfils all three functions of money:
1. Medium of exchange
2. Store of value
3. Unit of account

Gold is an item that is generally accepted as a medium of exchange.

Gold is also a store of variable real value over time.

However, the daily gold price is not a unit of account.

Gold is thus a medium of exchange and a store of variable real value, but, not a unit of account with a constant real value.

Money is also not a unit of account with a constant real value. However, via financial capital maintenance in units of constant purchasing power as authorized 21 years ago in International Financial Reporting Standards in the Framework, Par 104 (a) which states:

“Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power.”

we are able to inflation-adjust constant real value non-monetary items by means of the monthly change in the annual CPI during low inflation and deflation (Constant ITEM Purchasing Power Accounting – CIPPA).

During hyperinflation we measure in units of constant purchasing power not only constant real value non-monetary items but also variable real value non-monetary items (all non-monetary items) on a daily basis in term of the US Dollar parallel rate or in terms of a government supplied daily non-monetary index as was done so successfully in Brazil during that country’s period of high and hyperinflation from 1964 to 1994. This is Constant Purchasing Power Accounting – CPPA as authorized and defined in IFRS in IAS 29.

This was not done during Zimbabwe´s hyperinflation although the daily US Dollar parallel rate as well as the Old Mutual Implied Rate (OMIR) were available to the whole country on a daily basis.

© 2005-2010 by Nicolaas J Smith. All rights reserved

No reproduction without permission.

Tuesday 9 November 2010

Variable real value of fiat money backed by all underlying value systems

Fiat money is:

* money (functional currency within an economy or monetary union) declared by a government to be legal tender that is not commodity money.

* state-issued money which is a medium of exchange for all other economic items in the economy, a store of depreciating real value during inflation and a store of appreciating real value during deflation as well as the depreciating unit of account during inflation and the appreciating unit of account during deflation in an internal economy. Fiat money bank notes and coins have fixed nominal values but either depreciating or appreciating real values. The depreciating or appreciating real value of fiat money - in its form as the functional currency within an economy or monetary union - is indicated by the annual rate of inflation or deflation. Severe hyperinflation can lead to the total destruction of the real value of the entire money supply and all other monetary items within an economy: see Zimbabwe. Neither low inflation nor hyperinflation have any effect on the real value of non-monetary items. Inflation and hyperinflation can only destroy the real value of money (a functional currency) and other monetary items - nothing else.

* money of which the token bank notes and bank coins have no intrinsic value.


All fiat money is created out of nothing: out of thin air.

It is, however, backed by all - the sum total of - the underlying value systems in an economy, namely sound governance, sound economic policies, sound monetary policies, sound industrial policies, sound commercial policies, sound external policies, sound education, sound legal system, sound law enforcement, sound defence force, sound transport policies, sound health policies, sound agricultural policies, sound banking policies, sound accounting principles, etc.

The annual rate of inflation above the central bank´s target indicates how much fiat money has been created in excess of what is considered by the central bank as required in the economy.

© 2005-2010 by Nicolaas J Smith. All rights reserved

No reproduction without permission.

Sunday 7 November 2010

Hyperinflation has no effect on the real value of non-monetary items

A vicious circle is created in which more and more inflation is created with each iteration of the ever increasing money printing cycle. This is not the same as and has nothing to do with, for example, the US Federal Reserve Bank´s and the Bank of Japan´s "Quantitative Easing (QE)" programs. This was, in fact, exactly the same as the Reserve Bank of Zimbabwe´s money printing program.


Hyperinflation becomes visible when there is an unchecked increase in the money supply (see hyperinflation in Zimbabwe) usually accompanied by a widespread unwillingness on the part of the local population to hold the hyperinflationary money for more than the time needed to trade it for something non-monetary to avoid further loss of real value. Hyperinflation is often associated with wars (or their aftermath), currency meltdowns like in Zimbabwe, and political or social upheavals.


"Hyperinflations have never occurred when a commodity served as money or when paper money was convertible into a commodity. The curse of hyperinflation has only reared its ugly head when the supply of money had no natural constraints and was governed by a discretionary paper money standard." p1


Hyperinflation normally results in severe economic depressions although that did not happen during the 30 years of very high and hyperinflation in Brazil from 1964 to 1994 because all non-monetary items (such as property, plant, equipment, inventory, finished goods, quoted and unquoted shares, trade marks, issued share capital, retained earnings, capital reserves, all other items in shareholders' equity, trade debtors, trade creditors, provisions, all other non-monetary payables, all other non-monetary receivables, taxes payable, taxes receivable, salaries payable, salaries receivable, etc.) in the entire economy of Brazil were updated daily in terms of a daily non-monetary index supplied by the government which was principally directly related to the change in the daily US dollar exchange rate for the Brazilian currency. This confirmed the fact that hyperinflation like low inflation can only destroy the real value of money and other monetary items. Hyperinflation (like low inflation) has no effect on the real value of non-monetary items. Purchasing power of non monetary items does not change in spite of variation in national currency value. p9

This was not done during Zimbabwe's hyperinflation although the daily change in the parallel rate for the US dollar as well as the Old Mutual Implied Rate (OMIR) were both available to everyone in Zimbabwe on a daily basis and eventually resulted in the wiping out of the real value of only those non-monetary items (such as salaries, wages, issued share capital, all other items in shareholders´ equity, trade debtors, trade creditors, salaries payable, salaries receivable, taxes payable, taxes receivable, all other non-monetary payables, all other non-monetary receivables, etc.) expressed in terms of the ZimDollar and never or not fully updated (inflation-adjusted) during Zimbabwe's hyperinflation. Zimbabwe's hyperinflationary monetary meltdown, on the other hand, resulted in the wiping out of the real value of all monetary items (actual 100 trillion Zimbabwe dollar bank notes, all other bank notes, all loans payable and all loans receivable and all other monetary items) expressed in terms of the hyperinflationary Zimbabwe Dollar which became completely worthless after severe hyperinflation which stopped abruptly the moment exchangeability between the currency and all foreign currencies did not exist anymore.

"Zimbabwe’s hyperinflation came to an abrupt halt. The trigger was an intervention by the Reserve Bank of Zimbabwe. On November 20, 2008, the Reserve Bank’s governor, Dr. Gideon Gono, stated that the entire economy was “being priced via the Old Mutual rate whose share price movements had no relationship with economic fundamentals, let alone actual corporate performance of Old Mutual itself” (Gono 2008: 7–8). In consequence, the Reserve Bank issued regulations that forced the Zimbabwe Stock Exchange to shut down. This event rapidly cascaded into a termination of all forms of non-cash foreign exchange trading and an accelerated death spiral for the Zimbabwe dollar. Within weeks the entire economy spontaneously “dollarized” and prices stabilized." p9-10.

© 2005-2010 by Nicolaas J Smith. All rights reserved

No reproduction without permission

Tuesday 2 November 2010

Severe Hyperinflation: Second submission: Nicolaas Smith Comment Letter: IASB Exposure Draft

My comment letter to the IASB regarding severe hyperinflation is available in the following book.


Buy the ebook for $2.99 or £1.53 or €2.68


 
© 2005-2010 by Nicolaas J Smith. All rights reserved

No reproduction without permission

Monday 1 November 2010

Valuing monetary items

Valuing monetary items

Measurement of Monetary Items in the Financial Statements

Measurement is the process of determining the monetary amounts at which monetary items are to be recognised and carried in the financial reports. This involves the selection of the particular basis of measurement. The original nominal values of monetary items can only be measured in nominal monetary units during the current accounting period.

During low inflation

The real value of money and other monetary items can not be updated or indexed or inflation-adjusted or maintained during the current financial period under any accounting or economic model during low inflation. Inflation destroys the real value of money and other monetary items evenly throughout the SA monetary economy currently at 4.6% per annum (May 2010) or about R120 billion per annum. Money and other monetary items only maintain their real values perfectly stable under permanently sustainable zero per cent annual inflation. This has never been achieved over an extended period of time of more than a month or two.


"The South African Reserve Bank conducts monetary policy within an inflation targeting framework. The current target is for CPI inflation to be within the target range of 3 to 6 per cent on a continuous basis." SARB

The SARB´s definition of price stability, in practice, is the destruction of the real value of the Rand at a rate of 6% or about R120 billion per annum because inflation normally rises to the top of the inflation targeting range. Real value is destroyed evenly in Rand bank notes and coins and other monetary items (loans, deposits, etc) throughout the SA monetary economy.

SA accountants value monetary items at their original nominal values – at their nominal historical cost – during the current financial period. It thus appears that it is correct when it is stated that “financial reporting simply reports on what took place”. That is mistaken. Accountants value everything they account. There is no other way monetary items can be accounted and valued during the current financial period. It is an illusion that accountants only record what happened in the past: the “financial-reporting-simply-reports-on-what-took-place”-illusion as promoted by accounting professors.
SA accountants value monetary items at their current depreciated generally lower real values by accounting them during the current accounting period at their original nominal HC values during inflation. Their real values are destroyed by inflation over time. Being stated at their original nominal HC monetary values by accountants during inflation means that monetary items are automatically being valued by the continuous economic process of inflation over time.

This obviously means that monetary items are always correctly valued during the current financial period in any current account: at the current real value as determined by the current rate of inflation. In practice, money and other monetary items´ real values consequently generally decrease once per month – on the date the new CPI value is published by the statistics authorities – to a lower real value in low inflationary economies.

SA accountants do not destroy the about R120 billion in real value of the Rand and other monetary items in the SA monetary economy each year: 4.6% inflation does that. SA accountants value and account monetary items correctly in the SA monetary economy by stating them at their original nominal monetary HC values. They, however, fail to calculate and account the net monetary gains and losses from holding either net monetary liabilities or net monetary assets, as the case may be. This is a generally accepted accounting practice under HCA.

The only difference between accounting and valuing monetary items under the current HCA model and their accounting and valuation when measuring financial capital maintenance in real value maintaining units of constant purchasing power would be the calculation and accounting of net monetary gains and losses. These net monetary gains and losses are required by the IASB to be calculated and accounted in terms of IAS 29 during hyperinflation. These net monetary gains and losses are not calculated and accounted under the HCA model although it can be done. See Kapnick. No-one does that under HCA. Net monetary gains and losses are constant real value non-monetary items (income statement gains and losses) once they are accounted and have to be inflation-adjusted – measured in units of constant purchasing power - thereafter under the financial capital maintenance in units of constant purchasing power model or Constant ITEM Purchasing Power Accounting model as authorized by the IASB in the Framework, Par 104 (a) in 1989 as well as in terms of IAS 29 during hyperinflation.

Side note: The FASB and IASB have been working on their joint Conceptual Framework project for the last 6 years. However, they have not stated one word about valuing monetary items - or items like shareholders equity. It is called the Historical Cost mentalité - like there used to be the gold standard mentalité.
Copyright © 2010 Nicolaas J Smith