Holding Gains and Losses | MYACCOUNTINGINFO.NET

Current value accounting divides total earnings into two parts: (1) operating earnings (the difference among present revenues plus the present price of resources consumed) and (2) unrealized gains that result from the possession of nonmonetary assets whose replacement value rises with inflation .The measurement of holding gains is straightforward, but their accounting therapy isn't. Must portions of raw materials inventory gains be realized in periods when the respective inventories are turned into finished goods and sold? Are there ever unrealized adjustment gains or losses that needs to be deferred? Or ought to all such gains or losses be lumped together and disclosed in a unique new section within stockholders’ equity?

We feel that increases within the replacement price of operating assets (e.g., greater projected money outflows to replace equipment) are not gains, realized or not. Whereas current-cost-based earnings measures a firm’s approximate disposable wealth, modifications in the current price of inventory, plant, equipment, along with other operating assets are revaluations of owners’ equity, which can be the portion of earnings that the business should maintain to preserve its physical capital (or productive capacity). Assets held for speculation, like vacant land or marketable securities, don't have to be replaced to sustain productive capacity. Hence, if current-cost adjustments include these items, increases or decreases in their current-cost (value) equivalents (up to their realizable values) really should be stated directly in revenue.