Measurement of variable items - Part 2

Measurement of variable items - Part 2

Entities implement the HC model when they choose to measure financial capital maintenance in nominal monetary units in terms of the IASB´s Conceptual Framework (2010), Par 4.59 (a). They implement the HCA model which includes the very erosive stable measuring unit assumption. In so doing, the stable measuring unit assumption – and not inflation – is unknowingly, unintentionally and unnecessarily eroding the real value of constant items never maintained constant during low inflation.


The IASB only makes a distinction between monetary and non–monetary items. The stable measuring unit assumption allows the IASB to side–step the split between variable real value non–monetary items and constant real value non–monetary items.

Non–monetary items which “hold their values in terms of purchasing power” under HCA are variable items as well as the particular income statement constant items salaries, wages, rentals, etc. – the latter being valued in units of constant purchasing power on an annual (not monthly) basis during low inflation. Variable items hold their values in terms of purchasing power as a result of the ways in which they are valued in terms of IFRS in which their nominal values are adjusted to allow for the many factors that determine their values – including inflation. For example: fair value, market value, net realizable value, present value and recoverable value all adjust for inflation – in the real value of the monetary unit – as part of the specific valuation process.


Nicolaas Smith

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