Example of CMUCPP with a Daily CPI versus IAS 29

May 30, 2013 in Uncategorized

Example of CMUCPP with a Daily CPI versus IAS 29


All non-monetary receivables and payable are treated as monetary items under Historical Cost Accounting. They are not monetary items. Monetary items are defined as constituting the money supply. Non-monetary receivables and payables are not part of the money supply. They are constant real value non-monetary items since they are linked to underlying non-monetary items.
IAS 29 does not specifically require the implementation of Historical Cost Accounting during hyperinflation. IAS 29 requires the implementation of Capital Maintenance in Units of Constant Purchasing Power in the form of the restatement of HC or CC financial statements in terms of the measuring unit current at the balance sheet date. All non-monetary receivables and payables are thus treated as monetary items under IAS 29 too. The net “monetary” gain or loss is calculated with reference to these items under IAS 29.
They are constant real value non-monetary items under CMUCPP and are accounted as such. There is no net constant purchasing power gain or loss under ideal CMUCPP with complete coordination. This results in the maintenance of 100% of the real value of all non-monetary receivables and payables instead of destroying their real values at the rate of hyperinflation with the implementation of the stable measuring unit assumption during the 353 days of the year that the daily general price level is not recognized under IAS 29. IAS 29 only recognizes the 12 month-end CPIs.
The following example clearly proves the above:
HistCost
Historical
 Cost
Zim$ Results
Date
Daily CPI
Z$/USD
Dr
Cr
Dr
Cr
Dr
Cr
Derived
Derived
USD
USD
Zim$
Zim$
USD
USD
1/11/07
4 387,69
43,8769
Capital
1000
43 877
133
1/11/07
4 387,69
43,8769
Stock
1000
43 877
133
1/11/07
4 387,69
43,8769
Debtors
4000
175 508
531
1/11/07
4 387,69
43,8769
Sales
4000
175 508
531
30/11/07
9 727,86
97,2786
31/12/07
33 080,55
330,8055
P+L –CoS
1000
43 877
133
31/12/07
33 080,55
330,8055
Stock
1000
43 877
133
31/12/07
33 080,55
330,8055
Sale
4000
175 508
531
31/12/07
33 080,55
330,8055
P+L – Sales
4000
175 508
531
31/12/07
33 080,55
330,8055
Net MonetaryLoss
-
-
-
-
31/12/07
33 080,55
330,8055
P+L – Net Mon Loss
-
-
-
-
31/12/07
33 080,55
330,8055
Net MonetaryLoss
-
-
-
-
31/12/07
33 080,55
330,8055
Dividend
3000
131 631
398
31/12/07
33 080,55
330,8055
Bank
3000
131 631
398
IAS 29 with the monthly CPI
Date
Daily CPI
Z$/USD
Conv
Dr
Cr
Dr
Cr
Derived
Derived
Factor
Zim$
Zim$
USD
USD
1/11/07
4 387,69
43,8769
Capital
3,40
149 208
451
1/11/07
4 387,69
43,8769
Stock
3,40
149 208
451
1/11/07
4 387,69
43,8769
Debtors
1,00
175 508
531
1/11/07
4 387,69
43,8769
Sales
3,40
596 831
1 804
30/11/07
9 727,86
97,2786
3,40
31/12/07
33 080,55
330,8055
P+L – CoS
3,40
149 208
451
31/12/07
33 080,55
330,8055
Stock
3,40
149 208
451
31/12/07
33 080,55
330,8055
Sale
3,40
596 831
1 804
31/12/07
33 080,55
330,8055
P+L – Sales
3,40
596 831
1 804
31/12/07
33 080,55
330,8055
Net MonetaryLoss
421 322
1 274
31/12/07
33 080,55
330,8055
P+L – Net Mon Loss
421 322
1 274
31/12/07
33 080,55
330,8055
Net MonetaryLoss
421 322
1 274
31/12/07
33 080,55
330,8055
Dividend
26 301
80
31/12/07
33 080,55
330,8055
Bank
26 301
80
IAS 29 withDaily CPI
Date
Daily CPI
Z$/USD
Conv
Dr
Cr
Dr
Cr
Derived
Derived
Factor
Zim$
Zim$
USD
USD
1/11/07
4 387,69
43,8769
Capital
7,54
330 806
1000
1/11/07
4 387,69
43,8769
Stock
7,54
330 806
1000
1/11/07
4 387,69
43,8769
Debtors
7,54
1 323 222
4000
1/11/07
4 387,69
43,8769
Sales
7,54
1 323 222
4000
30/11/07
9 727,86
97,2786
31/12/07
33 080,55
330,8055
P+L – CoS
7,54
330 806
1000
31/12/07
33 080,55
330,8055
Stock
7,54
330 806
1000
31/12/07
33 080,55
330,8055
Sale
7,54
1 323 222
4000
31/12/07
33 080,55
330,8055
P+L – Sales
7,54
1 323 222
4000
31/12/07
33 080,55
330,8055
Net MonetaryLoss
7,54
-
31/12/07
33 080,55
330,8055
P+L – Net Mon Loss
7,54
-
31/12/07
33 080,55
330,8055
Net MonetaryLoss
7,54
-
31/12/07
33 080,55
330,8055
Dividend
992 417
3000
31/12/07
33 080,55
330,8055
Bank
992 417
3000
From the above we can see that:
1.       Under IAS 29 in terms of the monthly CPI – the way IAS 29 has been implemented since 1990 although a monthly CPI is not specifically required in the standard, 54.9% of the real value of whatever capital was still left in Zimbabwe was destroyed, not by hyperinflation, but the stable measuring unit assumption (HCA) during the two months of November and Dezember 2007 in the Zimbabwean economy. That is what happened in the whole economy.
2.       Under ideal Capital Maintenance in Units of Constant Purchasing Power in terms of a Daily CPI with complete coordination (everyone doing it – like in Brazil from 1964 to 1994), 100% of the real value of capital, all receivables and payables and all current year profits would have been maintained. That is, in principle, what happened during the very high and hyperinflation in Brazil from 1964 till 1994 when that country implemented a form of CMCUPP (indexation or monetary correction) in terms of a government supplied Daily Index.

Nicolaas Smith

Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.

Comments are closed.