IFRS and US GAAP authorised CMUCPP maintains the constant purchasing power of constant real value non-monetary items (e.g. capital, all items in shareholders´ equity, provisions, salaries, wages, pensions, taxes, trade debtors/creditors, etc) in terms of a Daily CPI in entities that at least break even in real value during low and high inflation, hyperinflation and deflation - ceteris paribus. European Accounting Assoc: "Capital maintenance is a competing objective of financial reporting."
deflation have no effect on the real value of non-monetary items. Capital
contributed and comprehensive income, for example, are constant real value
non-monetary items. IAS 29 defines them as non-monetary items. The definition
of a constant real value non-monetary item is derived in IFRS.
It is not inflation
and deflation affecting the real value of constant real value non-monetary
items not maintained constant over time. It is the implementation of the stable
measuring unit assumption as part of the traditional Historical Cost Accounting
model during inflation and deflation.
the real value of only monetary items not inflation-adjusted on a daily basis in
terms of a Daily Consumer Price Index over time. Deflation creates real value
in only monetary items not inflation-adjusted on a daily basis in terms of a
Daily Consumer Price Index over time. It is currently (2012) impossible to
inflation-adjust or deflation-adjust bank notes and coins.
many different countries has no effect on the real value of monetary items
inflation-adjusted on a daily basis, for example the more than 2.68 trillion US
Dollars (2009)1 of government inflation-indexed bonds currently inflation-adjusted
daily in the world economy in terms of a Daily Consumer Price Index which is a
lagged, daily interpolation of the respective monthly published CPI.
According to the Banco Central de Chile, 20 to 25 per
cent of the broad M3 money supply in Chile is inflation-adjusted on a daily
basis in terms of the Unidad de Fomento
communication. (2011)) which is a monetized daily indexed unit of account started in 1967 and
published daily by the Banco Central de
Chile since 1990.
The above are all
monetary items that exist in a zero cost of inflation (not zero inflation)
space. They are all monetary items, but, their real values are not affected by
The entire cost of inflation can be eliminated under complete co-ordination when the entire money supply in an economy (excluding bank notes and coins that generally make up about seven per cent of the money supply in an advanced economy) is inflation-adjusted on a daily basis in terms of a Daily Consumer Price Index.
The requirement in IAS
29, Par. 9 that ‘the
gain or loss on the net monetary position shall be included in profit or lossand separately disclosed,’ deals with the ‘effects of inflation’ and deflation on
monetaryitems only during
definitions of monetary items in IAS 29, Par. 12 and IAS 21, Par. 8 need to be
improved because non-monetary items are all items that are not monetary items.
The definition of monetary items thus determines which items are non-monetary
items per IFRS. When the definition of monetary items is incorrect then the
division of monetary and non-monetary items is incorrect as it currently is in
terms of IFRS.
Everything else in IAS
29 unsuccessfully2 deals with the effect of the stable measuring
unit assumption (not the ‘effects of inflation’) on constant real value
non-monetary items, e.g. capital contributed and comprehensive income, not
maintained constant during hyperinflation.
A monetary item is one
of the three basic economic items:
(a) Monetary items
(b) Variable real value non-monetary items
(c) Constant real value non-monetary items
Monetary items are units of money held and items with
an underlying monetary nature which are substitutes for units of money held.
Examples of units of money
held are bank notes and coins of the fiat currency created within an economy by
means of fractional reserve banking. Examples of items with an underlying
monetary nature which are substitutes of money held include the capital amount
of: bank loans, bank savings, credit card loans, car loans, home loans, student
loans, consumer loans, commercial and government bonds, Treasury Bills, all
capital and money market investments, notes payable, notes receivable, etc.
when these items are not in the form of money held.
Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.