Valuing constant real value non–monetary items

Valuing constant real value non–monetary items

All constant items have always and everywhere (historic and current period constant items) to be measured in units of constant purchasing power in terms of a Daily CPI or other daily rate under financial capital maintenance in units of constant purchasing power (CIPPA) in order to automatically maintain the constant purchasing power of capital constant 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 in a double-entry accounting model under which the real value of owners´ equity is equal to the real value of net assets. This is not always the case, hence the necessity to calculate the net constant item loss or gain during the current financial period when constant items are not measured in units of constant purchasing power, e.g., in the case of trade debtors and trade creditors as well as other non-monetary payables and receivables treated incorrectly as monetary items by third parties who still implement HCA.

The constant real values of constant items in the constant item economy are automatically maintained constant under Constant Item Purchasing Power Accounting during low inflation and deflation by means of continuous financial capital maintenance in units of constant purchasing power

Annual measurement in units of constant purchasing power is only currently implemented under the HCA model in the case of certain (not all) income statement items, e.g., salaries, wages, rentals, etc. in non–hyperinflationary economies. Once updated annually, these items are normally paid at the same monthly value; i.e., the stable measuring unit assumption is applied in their monthly payments during the financial year.

Financial reporting has to take all three scenarios – occurring simultaneously – into account over time when an entity´s economic activities are accounted daily and financial reports are prepared and presented periodically and accessed or viewed today at the current Daily CPI or other daily rate.

Harvey Kapnick was correct when he stated in the Saxe Lecture in 1976:

‘In the long run both value accounting and price–level accounting should prevail.’

Nicolaas Smith

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