IFRS and US GAAP authorised CMUCPP automatically 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) only when updated in terms of the Daily CPI during low and high inflation, hyperinflation and deflation - ceteris paribus. European Accounting Association: "Capital maintenance is a competing objective of financial reporting."
All monetary items are always affected by inflation and deflation.
All monetary items are always affected by inflation and deflation
monetary item should always be inflation-adjusted daily in terms of the Daily
CPI or other daily rate. This has never been and is currently (2012) still not
possible with physical bank notes and coins. The net monetary loss or gain thus
needs to be calculated and accounted during the current financial period under financial
capital maintenance in units of constant purchasing power (CIPPA). This is also
true for other monetary items not inflation-adjusted daily. All monetary items are
always affected by inflation and deflation.
the stable measuring unit assumption it is assumed that changes in the
purchasing power of money are not sufficiently important to require capital
maintenance in units of constant purchasing power on a daily basis. Another way
to state the stable measuring unit assumption is to state that it is assumed
that the real value of money is perfectly stable over time. The stable
measuring unit assumption is applied to the measurement of certain non-monetary
items and all monetary items under HCA. It is not applied under CIPPA.
It is not assumed that bank notes and coins have nominal values
over time: it is a fact, not an assumption. It is a fact (2012) that the
nominal value of a bank note or coin is perfectly stable over time.
real values of monetary items inflation-adjusted daily are still affected by
inflation and deflation, but, by inflation-adjusting or deflation-adjusting
them their real values are maintained constant by contract. They have constant
real values over time, e.g. capital inflation-indexed government bonds. They
are, however, not constant real value monetary items. That would only be the
case at permanently sustainable zero inflation. Inflation and deflation thus
always affect the real values of all monetary items within an economy. The real
values of monetary items inflation-adjusted daily are maintained constant by
contract. The entire cost of inflation (not actual inflation) in all monetary
items (excluding bank notes and coins) would be eliminated when the total money
supply (as qualified) is inflation-adjusted daily.
Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.