Measurement of variable items in the financial statements

Measurement of variable items in the financial statements

Measurement in the case of variable items is the process of determining the monetary amounts at which variable items are to be recognised, valued, carried and accounted on a daily basis in an economy under all levels of inflation and deflation. This involves the selection of particular bases of measurement.

Under CIPPA variable items are valued in terms of IFRS. Variable item revaluation losses and gains are treated in terms of IFRS. Variable items, when not valued daily in terms of IFRS, would be updated in terms of a Daily Index or a monetized daily indexed unit of account because there is no stable measuring unit assumption under financial capital maintenance in units of constant purchasing power.

Variable items in the non–monetary or real economy are valued at, for example, fair value or the lower of cost and net realizable value or recoverable value or market value or present value, etc. in terms of IFRS. 

The real values of variable items exist independently of being valued at their original nominal Historical Cost values in terms of IFRS. Valuing a variable item at its original cost during its lifetime does not erode its real value because it would be valued at its current market value whenever it is finally exchanged or sold in the future. Any variable item valued at HC, when not being revalued, would be continuously updated in terms of a Daily Index since the stable measuring unit assumption is not applied under CIPPA.

Originally all items in financial statements – monetary, variable and constant real value non–monetary items – were valued at Historical Cost before there were any GAAPs, IASs or IFRSs, since money – the monetary unit of account – was generally assumed to be stable in real value over time: the infamous stable measuring unit assumption. Today, the traditional Historical Cost Accounting model maintains this very erosive and very economically destabilizing assumption for the valuation of all income statement items, all balance sheet constant items and certain variable items, e.g. inventories which are measured at the lower of cost and net realisable value

 Entities may also choose the historical cost model instead of the revaluation model for measurement of fixed assets after recognition. After recognition as a fixed asset, an item of property, plant and equipment may be carried at its historical cost less any accumulated depreciation and any accumulated impairment losses.

Nicolaas Smith

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