Pages

Thursday, 12 April 2012

A financial report relates to one day


A financial report relates to one day



A balance sheet is prepared periodically reporting the real net asset value (not the real market value or the real intrinsic value) of an entity on a specific day, e.g. the end of a month, the end of a quarter, the end of six months, the end of a financial year or sometimes a longer financial period.



A balance sheet under financial capital maintenance in units of constant purchasing power (CIPPA) is a financial report relating to an instant in an entity´s economic life: a report about the real net asset value of an entity on a specific day; i.e., the date of the financial report in terms of the Daily Consumer Price Index or other daily rate on that day when the financial report is accessed or viewed on that day.



The next day and every day thereafter, the real net asset value of an entity is generally different because the daily valuations of variable real value non-monetary items have changed, the entity has created more constant real value in the form of constant real value non-monetary after tax net income or has suffered a constant real value non-monetary net loss or extra capital or other resources have been contributed by shareholders or other third parties. The entity is a going concern and its real net asset value generally changes day after day.



In the event of the real net asset value remaining the same from the one day to the next, the nominal net asset value would generally change during inflation and deflation under financial capital maintenance in units of constant purchasing power (CIPPA) because the stable measuring unit assumption is not implemented under this accounting model. Inflation and deflation change the real value of money, the monetary unit of account, over time.



The real net asset value of the entity as reported in the balance sheet on the date of the balance sheet stays constant in real value (not in nominal value during inflation and deflation) for an indefinite period of time with reference to the date of the financial report. But, the real value of the functional currency (the unstable monetary unit of account) generally changes daily as indicated by the change in the Daily CPI or monetized daily indexed unit of account in a non-dollarized economy at all levels of inflation and deflation. Thus, all items in a historic balance sheet and all historic financial reports have to be valued at the current, i.e. today´s, Daily CPI or other daily rate under financial capital maintenance in units of constant purchasing power (CIPPA).


Nicolaas Smith

Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.

No comments:

Post a Comment