Monday, 18 July 2011

Valuing / accounting constant items

Valuing / accounting constant items

A new as in original constant real value non-monetary item is valued today for the first time at its nominal value. For example: a company is formed today with issued share capital, issued today, at e.g. USD 1 million. The issued share capital is valued today at USD 1 million. The original constant item is accounted at today´s date with the CPI, e.g. at 100, at its nominal value of USD 1 million.

When the CPI changes to 102 tomorrow, the constant item, published in whatever format, is measured in units of constant purchasing power at USD 1 020 000: its nominal value increases, but, its real value stays the same over time. Constant items are continuously measured in units of constant purchasing power (not inflation-adjusted: inflation has no effect on the real value of non-monetary items) in all ledger accounts and in all possible forms of publication at all future values of the CPI in order to reflect / show / state / present their constant real non-monetary values (always higher nominal values) at the current (always lower or depreciated) real value of the national currency (which is also the monetary unit of account) during continuous inflation: over time. During hyperinflation constant items are measured in units of constant purchasing power as stated above in terms of the current daily parallel or daily index rate.

When the economy changes over from an inflationary mode to a deflationary mode, all constant items´ nominal values (e.g. issued share capital, salaries, wages, rentals, etc.) are decreased at the rate of deflation on a monthly basis in order to maintain the constant real non-monetary values of these constant items constant and maintain economic stability in the constant item economy at the new higher or appreciated real value of the national currency within the national economy during deflation.

Nicolaas Smith

Copyright (c) 2005-2011 Nicolaas J Smith. All rights reserved. No reproduction without permission.

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