Money was then invented over a long period of time. Eventually money came to fulfil the following three functions during inflation and deflation:
a. Unstable medium of exchange
b. Unstable store of value
c. Unstable unit of account
Non-monetary items which are all items which are not monetary items were only defined in monetary terms after the invention of money. The economy came to be divided in the monetary economy and the non-monetary or real economy. There were only unstable monetary items and variable real value non-monetary items. There were no constant real value non-monetary items yet. The non-monetary or real economy consisted of only variable real value non-monetary items. Non-monetary items are all items that are not monetary items.
Monetary items are money held and items with an underlying monetary nature.
Examples of monetary items in today’s economy are bank notes and coins, bank loans, bank savings, other monetary savings, other monetary loans, bank account balances, treasury bills, commercial bonds, government bonds, mortgage bonds, student loans, car loans, consumer loans, credit card loans, notes payable, notes receivable, etc.
Unstable money and other unstable monetary items´ real values are continuously being eroded by inflation over time. Inflation only erodes the real value of unstable money and other unstable monetary items. Inflation has no effect on the real value of non-monetary items.
Non-monetary items are all items that are not monetary items.
Non-monetary items in today’s economy are divided into two sub-groups:
a) Variable real value non-monetary items
b) Constant real value non-monetary items
There were still no units of constant purchasing power because there was still no CPI at that time. There was still no HCA model, no very destructive stable measuring unit assumption based on a fallacy and no financial capital maintenance in nominal monetary units fallacy during inflation and deflation. There was still no price-level accounting, no constant purchasing power (CPPA) inflation accounting model for hyperinflationary economies and no real value maintaining continuous financial capital maintenance in units of constant purchasing power basic accounting model (CIPPA) for low inflationary and deflationary economies. There were still no financial reports.
Copyright (c) 2005-2010 Nicolaas Smith. All rights reserved. No reproduction without permission.
Fin24 17-3-11
Showing posts with label Monetary items. Show all posts
Showing posts with label Monetary items. Show all posts
Monday, 27 December 2010
Wednesday, 30 June 2010
Monetary items
International Financial Reporting Standards definitions:
1. IAS 21 Par 8 Monetary items are units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency.
So, if you buy a mobile phone on credit and pay it´s fixed price in two month´s time, then your mobile phone is a monetary item according to IFRS.
Obviously wrong.
2. IAS 29 Par 12 Monetary items are money held and items to be received or paid in money.
If you buy a mobile phone on credit and its fixed price is to be paid in two month´s time in money, then your mobile phone is a monetary item according to IFRS.
Obviously wrong.
The correct definition of monetary items:
Monetary items constitute the Money supply.
Updated on 11-05-2013
Trade debtors and trade creditors are constant real value non-monetary items.
Kindest regards
Nicolaas Smith
realvalueaccounting@yahoo.com
Copyright © 2010 Nicolaas J Smith
1. IAS 21 Par 8 Monetary items are units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency.
So, if you buy a mobile phone on credit and pay it´s fixed price in two month´s time, then your mobile phone is a monetary item according to IFRS.
Obviously wrong.
2. IAS 29 Par 12 Monetary items are money held and items to be received or paid in money.
If you buy a mobile phone on credit and its fixed price is to be paid in two month´s time in money, then your mobile phone is a monetary item according to IFRS.
Obviously wrong.
The correct definition of monetary items:
Monetary items constitute the Money supply.
Updated on 11-05-2013
Trade debtors and trade creditors are constant real value non-monetary items.
Kindest regards
Nicolaas Smith
realvalueaccounting@yahoo.com
Copyright © 2010 Nicolaas J Smith
Sunday, 27 July 2008
Monetary items
The second distinct economic item is a monetary item.
Buy the ebook for $2.99 or £1.53 or €2.68
Monetary items constitute the Money supply.
Updated on 11-05-2013
The definition of monetary items is critical for the classification of non-monetary items since the latter are all items that are not monetary items. If the definition of monetary items is wrong then the definition of non-monetary items will also be wrong. This will affect the valuing of monetary and non-monetary items and the correctness of both accounting records and financial reports.
Money
Money is the greatest economic invention of all time. Money did not exist and was not discovered. It was invented over a long period of time.
Money was critical for the level of economic development achieved to date. Modern economic development would have been very slow indeed if money was not invented. Money is one of the greatest human inventions of all time. It ranks on par with the invention of the wheel and the Gutenberg press.
Money held
Examples of money held are bank notes and bank coins.
Monetary values pertaining to money
All economic items have monetary values. Both non-monetary items and monetary items are expressed in monetary values. They are expressed in terms of money. Money is used as the unit of account or measuring unit. Variable, constant and monetary items are all expressed in terms of money and have monetary values.
There is, however, a difference between having a monetary value and being a monetary value. All economic items have monetary values, but, only monetary items are monetary values. Non-monetary items have monetary values, but, they are not monetary items.
A house has a monetary value but it is not a monetary item. A house is a variable real value non-monetary item whose value is expressed in terms of money.
Likewise a salary has a monetary value but it is not a monetary item. A salary is a constant real value non-monetary item whose value is expressed in monetary terms.
Examples of monetary values pertaining to money:
Bank account balances
Money loans
Mortgages
Bonds
Treasuries
Consumer credit
Bank credit
Notes payable
Notes receivable
The above are monetary values pertaining only to money. They are accounted monetary balances or accounted values of money lent or borrowed, payable or receivable in money.
The original nominal values lent or borrowed – the capital values - in the case of loans are nominal and fixed.
Inflation destroys the real value of money over time. Inflation thus destroys the real value of their capital values over time at the rate of inflation as determined by the change in the Consumer Price Index.
The above monetary values that are monetary items have exactly the same attributes as money held with the single exception that they are not actual bank notes and bank coins but accounted monetary values.
Examples of constant real value non-monetary items often wrongly treated as being monetary items:
Trade debtors
Trade creditors
Functions of money
Money has three functions.
1. Medium of exchange
2. Store of value
3. Unit of account
Only an economic item that fulfils all three functions of money at the same time can be money in a specific economy or monetary union. Fulfilling only two of the three functions does not qualify an economic item as money. See Foreign Exchange.
Medium of exchange
Money is a medium of exchange which is its main function. The principle reason money was invented was to serve first and foremost as a medium of exchange.
External market
Money is a medium of exchange for external trade in goods and services and other economic transactions between economic entities in different countries and/or monetary regions. Foreign currencies are bought and sold on a daily basis in foreign exchange markets at exchange rates determined by demand and supply in those markets.
Only the classification and valuation of foreign exchange in the internal economy is included in the scope of this book. See Foreign Exchange.
Internal market
Money’s main function in the internal market is that it is a medium of exchange used in the transfer of economic items between economic entities. Money is only accepted as a medium of exchange while it fulfils all there functions of money. When the official functional currency loses all its value at the end of a hyperinflationary spiral, it has no store of value function and stops being money.
Store of value
The fact that the first types of money consisted of gold or silver coins developed into money’s second function, namely, being a store of value.
The actual coin was worth its value in gold or silver. Sometimes the value of gold bullion was more than the value of the gold coins were made of. People then melted the coins and sold the gold in bullion form for a higher price.
Next money was not made of precious metal coins but money consisted of bank notes the real values of which were fully backed by gold reserves.
Today our bank notes and bank coins have no intrinsic value and they are not backed by gold reserves or other precious metal reserves. Today our money is backed by all the underlying value systems in our economy.
Some, but not all, of these underlying value systems are:
Sound
Political government
Judicial system
Law enforcement system
Economic policies
Monetary policies
Commercial policies
Industrial policies
External trade policies
Education policies
Health policies
International relations
Defence policies
Accounting model
Regional policies
The abuse of money’s store of value function led to original inflation. Money is a store of real value over time. Unfortunately inflation destroys the real value of money over time.
Buy the ebook for $2.99 or £1.53 or €2.68
Buy the ebook for $2.99 or £1.53 or €2.68
Monetary items constitute the Money supply.
Updated on 11-05-2013
The definition of monetary items is critical for the classification of non-monetary items since the latter are all items that are not monetary items. If the definition of monetary items is wrong then the definition of non-monetary items will also be wrong. This will affect the valuing of monetary and non-monetary items and the correctness of both accounting records and financial reports.
Money
Money is the greatest economic invention of all time. Money did not exist and was not discovered. It was invented over a long period of time.
Money was critical for the level of economic development achieved to date. Modern economic development would have been very slow indeed if money was not invented. Money is one of the greatest human inventions of all time. It ranks on par with the invention of the wheel and the Gutenberg press.
Money held
Examples of money held are bank notes and bank coins.
Monetary values pertaining to money
All economic items have monetary values. Both non-monetary items and monetary items are expressed in monetary values. They are expressed in terms of money. Money is used as the unit of account or measuring unit. Variable, constant and monetary items are all expressed in terms of money and have monetary values.
There is, however, a difference between having a monetary value and being a monetary value. All economic items have monetary values, but, only monetary items are monetary values. Non-monetary items have monetary values, but, they are not monetary items.
A house has a monetary value but it is not a monetary item. A house is a variable real value non-monetary item whose value is expressed in terms of money.
Likewise a salary has a monetary value but it is not a monetary item. A salary is a constant real value non-monetary item whose value is expressed in monetary terms.
Examples of monetary values pertaining to money:
Bank account balances
Money loans
Mortgages
Bonds
Treasuries
Consumer credit
Bank credit
Notes payable
Notes receivable
The above are monetary values pertaining only to money. They are accounted monetary balances or accounted values of money lent or borrowed, payable or receivable in money.
The original nominal values lent or borrowed – the capital values - in the case of loans are nominal and fixed.
Inflation destroys the real value of money over time. Inflation thus destroys the real value of their capital values over time at the rate of inflation as determined by the change in the Consumer Price Index.
The above monetary values that are monetary items have exactly the same attributes as money held with the single exception that they are not actual bank notes and bank coins but accounted monetary values.
Examples of constant real value non-monetary items often wrongly treated as being monetary items:
Trade debtors
Trade creditors
Functions of money
Money has three functions.
1. Medium of exchange
2. Store of value
3. Unit of account
Only an economic item that fulfils all three functions of money at the same time can be money in a specific economy or monetary union. Fulfilling only two of the three functions does not qualify an economic item as money. See Foreign Exchange.
Medium of exchange
Money is a medium of exchange which is its main function. The principle reason money was invented was to serve first and foremost as a medium of exchange.
External market
Money is a medium of exchange for external trade in goods and services and other economic transactions between economic entities in different countries and/or monetary regions. Foreign currencies are bought and sold on a daily basis in foreign exchange markets at exchange rates determined by demand and supply in those markets.
Only the classification and valuation of foreign exchange in the internal economy is included in the scope of this book. See Foreign Exchange.
Internal market
Money’s main function in the internal market is that it is a medium of exchange used in the transfer of economic items between economic entities. Money is only accepted as a medium of exchange while it fulfils all there functions of money. When the official functional currency loses all its value at the end of a hyperinflationary spiral, it has no store of value function and stops being money.
Store of value
The fact that the first types of money consisted of gold or silver coins developed into money’s second function, namely, being a store of value.
The actual coin was worth its value in gold or silver. Sometimes the value of gold bullion was more than the value of the gold coins were made of. People then melted the coins and sold the gold in bullion form for a higher price.
Next money was not made of precious metal coins but money consisted of bank notes the real values of which were fully backed by gold reserves.
Today our bank notes and bank coins have no intrinsic value and they are not backed by gold reserves or other precious metal reserves. Today our money is backed by all the underlying value systems in our economy.
Some, but not all, of these underlying value systems are:
Sound
Political government
Judicial system
Law enforcement system
Economic policies
Monetary policies
Commercial policies
Industrial policies
External trade policies
Education policies
Health policies
International relations
Defence policies
Accounting model
Regional policies
The abuse of money’s store of value function led to original inflation. Money is a store of real value over time. Unfortunately inflation destroys the real value of money over time.
Buy the ebook for $2.99 or £1.53 or €2.68
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