Variable items exist independently of how accountants value them

As we know, the economy consists of three basic economic items:

1.Monetary items
2.Variable real value non-monetary items
3.Constant real value non-monetary items

Monetary items are money held and items with an underlying monetary nature. Non-monetary items are all items that are not monetary items. Non-monetary items are further sub-divided into variable and constant items.

Variable items are non-monetary items with variable real values
valued in terms of IFRS or GAAP.

The first economic items were variable items not yet expressed in terms of money since money was not yet invented at that time. Once money was invented all economic items, including variable items, were expressed in monetary terms.

Examples of variable items and how they are valued

Property – at cost or fair value
Freehold Land – at cost or fair value
Buildings – at cost or fair value
Leasehold Improvements – at cost
Plant – at cost
Equipment – at cost
Equipment under Finance Lease – at cost
Investment Property – at fair value
Goodwill – at cost
Other Intangible Assets – at cost
Capitalised Development Items – at cost
Patents – at cost
Trademarks – at cost
Licences – at cost
Investments in Associates – at cost
Joint Ventures – at cost
Other Financial Assets – at fair value
Derivatives designated and effective as hedging instruments – at fair value
Foreign currency forward contracts – at fair value
Interest rate swaps – at fair value
Financial assets carried at fair value through profit or loss
Non-derivative financial assets designated as carried at fair value through profit or loss
Held for trading derivatives that are not designated in hedge accounting relationships – at fair value
Held for trading non-derivative financial assets – at fair value
Available-for-sale investments carried at fair value
Redeemable notes – at fair value
Shares – at fair value
Inventories – at the lower of cost and net realisable value
Raw Materials – at the lower of cost and net realisable value
Work-in-progress – at the lower of cost and net realisable value
Finished Goods – at the lower of cost and net realisable value
Foreign currency – at market value

Variable items in South Africa are valued, for example, at fair value or the lower of cost and net realizable value or recoverable value or market value or present value in terms of IFRS or SA GAAP. “Listed companies use IFRS and the unlisted companies could use either IFRS or Statements of GAAP.”

SA financial reports fairly represent the fundamental real values of variable items in terms of IFRS or SA GAAP only at the balance sheet date – excluding those valued at original nominal Historical Cost when that original date is not the balance sheet date on a primary valuation basis. The fundamental real values of variable items exist independently of being valued at their original nominal HC after the original date they came about or were acquired by the firm. Valuing a variable item at its original nominal HC during its lifetime does not destroy its real value because it will be valued at its current market value whenever it is finally exchanged or sold or disposed of in the future.

© 2005-2010 by Nicolaas J Smith. All rights reserved

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