Capital Maintenance in Units of Constant Purchasing Power is authorized as an alternative to Historical Cost Accounting in IFRS at all levels of inflaiton and deflation in the original Framework (1989), Par. 104 (a) [now the Conceptual Framework (2010), Par. 4.59 (a)] which states:
'Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power.'
IAS 29 is - currently - still required to be applied during hyperinflation.
Any entity implementing IFRS during low inflation, high inflation and deflation can thus immediately change over to capital maintenance in units of constant purchasing power (CIPPA).
Capital maintenance in units of constant purchasing power is a departure from Historical Cost Accounting. It is a fundamentally different accounting model than HCA, i.e. financial capital maintenance in nominal monetary units.
Capital maintenance in units of constant purchasing power automatically maintains the constant purchasing power of capital constant for an indefinite period of time in all entities that at least break even in real value at all levels of inflation and deflation - ceteris paribus - whether they own any revaluable fixed assets or not.
The attributes of capital maintenance in units of constant purchasing power are:
Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.