[Attributes of CIPPA - Part 1 of 3: Monetary items inflation-adjusted daily]
Variable
items are valued and accounted and variable item revaluation losses and gains
are treated in terms of IFRS under CIPPA. Variable items –when not valued daily
in terms of IFRS – are updated daily in terms of a DCPI or a monetized daily
indexed unit of account during low and high inflation and deflation and in
terms of a daily hard currency parallel rate or daily Brazilian-style index
rate during hyperinflation because there is no stable measuring unit assumption
under financial capital maintenance in units of constant purchasing power at
all levels of inflation and deflation (CIPPA).
Selling
prices of variable items in shops and restaurants, etc. are not updated on a
daily basis during low inflation and deflation. They are set in a free
market. Keeping them the same during a
period is a marketing strategy. Selling prices depend on demand and supply.
McDonalds´ prices would not be updated daily in terms of a DCPI or a monetized
daily indexed unit of account during low inflation and deflation under CIPPA.
They would
be updated daily under financial capital maintenance in units of constant
purchasing power during hyperinflation which requires daily updating of all
non–monetary items (variable and constant items) in terms of a daily parallel
rate (normally the daily US Dollar parallel rate), a Brazilian–style URV daily
index or a monetized daily indexed unit of account like the UF in Chile. That
happened at McDonalds in Harare, Zimbabwe; i.e. the daily updating in terms of
the US Dollar parallel rate, not the implementation of financial capital
maintenance in units of constant purchasing power during hyperinflation.
Implementing IAS 29 did not result in financial capital maintenance in units of
constant purchasing power during hyperinflation in Zimbabwe.
IAS 29
simply requires the restatement of period–end HC or CC financial statements in
terms of the period–end monthly published CPI to supposedly make these
statements more useful during hyperinflation. The implementation of IAS 29 had
no effect on the economic collapse in Zimbabwe. IAS 29 could not stop the
economic collapse of the non–monetary or real economy during hyperinflation in
Zimbabwe. IAS 29 could not and the 2011 version cannot do what Brazil did
during 30 years of very high inflation and hyperinflation of up to 2000 per
cent per annum.
Hyperinflation
destroyed the Zimbabwe Dollar. The implementation of the HCA model and the
stable measuring unit assumption during hyperinflation destroyed the Zimbabwean
non–monetary economy. That did not happen during 30 years of very high inflation
and hyperinflation in Brazil.
Daily
updating of non–monetary items in terms of a daily non–monetary index supplied
by different Brazilian governments during 30 years of very high and
hyperinflation resulted in a relatively stable real economy with periods of
economic growth in GDP – during hyperinflation. Daily updating of non–monetary
items in terms of a daily index almost entirely based on the daily US Dollar
exchange rate that was completely ignored by the IASB in the formulation of IAS
29 in 1989. Brazil indexed non–monetary items on a daily basis during 30 years
from 1964 to 1994. IAS 29 was authorized in 1989.
[Attributes of CIPPA - Part 1: Monetary items inflation-adjusted daily]
Nicolaas Smith
Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.
No comments:
Post a Comment