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    Chapter 22 - Financial Reporing in Hyperinflationary Economies

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    Erwin Labayog Medina
    This document discusses financial reporting in hyperinflationary economies according to PAS 29. It begins by defining the stable monetary unit assumption and its exception for hyperinflation. It then states the core principle of PAS 29, which is that financial statements must be stated in terms of the measuring unit current at period end. It provides examples of how to restate statements of financial position and income statements under PAS 29, including distinguishing between monetary and non-monetary items. Key aspects covered are the formulas for restatement and accounting for gains/losses on net monetary positions.

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    Chapter 22 - Financial Reporing in Hyperinflationary Economies

    Uploaded by

    Erwin Labayog Medina
    968 views19 pages
    This document discusses financial reporting in hyperinflationary economies according to PAS 29. It begins by defining the stable monetary unit assumption and its exception for hyperinflation. It then states the core principle of PAS 29, which is that financial statements must be stated in terms of the measuring unit current at period end. It provides examples of how to restate statements of financial position and income statements under PAS 29, including distinguishing between monetary and non-monetary items. Key aspects covered are the formulas for restatement and accounting for gains/losses on net monetary positions.

    Original Title

    CHAPTER 22_FINANCIAL REPORING IN HYPERINFLATIONARY ECONOMIES

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    This document discusses financial reporting in hyperinflationary economies according to PAS 29. It begins by defining the stable monetary unit assumption and its exception for hyperinflation. It then states the core principle of PAS 29, which is that financial statements must be stated in terms of the measuring unit current at period end. It provides examples of how to restate statements of financial position and income statements under PAS 29, including distinguishing between monetary and non-monetary items. Key aspects covered are the formulas for restatement and accounting for gains/losses on net monetary positions.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    968 views19 pages

    Chapter 22 - Financial Reporing in Hyperinflationary Economies

    Uploaded by

    Erwin Labayog Medina
    This document discusses financial reporting in hyperinflationary economies according to PAS 29. It begins by defining the stable monetary unit assumption and its exception for hyperinflation. It then states the core principle of PAS 29, which is that financial statements must be stated in terms of the measuring unit current at period end. It provides examples of how to restate statements of financial position and income statements under PAS 29, including distinguishing between monetary and non-monetary items. Key aspects covered are the formulas for restatement and accounting for gains/losses on net monetary positions.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 19

    (Advanced Financial

    Accounting and Reporting


    Part 2)
    LECTURE AID

    2017

    ZEUS VERNON B. MILLAN

    AFAR PART 2: Zeus Vernon B. Millan


    Chapter 22 Financial Reporting in
    Hyperinflationary Economies
    Related Standard: PAS 29 Financial Reporting in
    Hyperinflationary Economies

    Learning Objectives
    • Define the stable monetary unit assumption. Provide the
    exception to this concept.
    • State the core principle under PAS 29.
    • Restate a statement of financial position and an income
    statement in accordance with PAS 29.

    AFAR PART 2: Zeus Vernon B. Millan


    The Stable Monetary Assumption

    • Under the stable monetary assumption, the purchasing power


    of money is assumed to be stable. Therefore, inflation is ignored.

    • The exception to this concept is hyperinflation.

    AFAR PART 2: Zeus Vernon B. Millan


    Price level changes

    • General price level changes and the purchasing power of money


    have an inverse relationship.
     If the general price level increases, this means that the
    purchasing power of money has decreased – a condition known
    as inflation.
     If the general price level decreases, this means that the
    purchasing power of money has increased – a condition known
    as deflation.

    AFAR PART 2: Zeus Vernon B. Millan


    Hyperinflation

    • Hyperinflation occurs when inflation is “very high.”

    • PAS 29 does not establish an absolute rate at which hyperinflation


    is deemed to arise. This is a matter of judgment.

    AFAR PART 2: Zeus Vernon B. Millan


    Indicators of hyperinflation
    1. The general population prefers to keep its wealth in non-monetary assets or in a
    relatively stable foreign currency. Amounts of local currency held are
    immediately invested to maintain purchasing power;
    2. The general population regards monetary amounts not in terms of the local
    currency but in terms of a relatively stable foreign currency. Prices may be quoted
    in that currency;
    3. Sales and purchases on credit take place at prices that compensate for the
    expected loss of purchasing power during the credit period, even if the period is
    short;
    4. Interest rates, wages and prices are linked to a price index; and
    5. The cumulative inflation rate over three years is approaching, or exceeds,
    100%.

    AFAR PART 2: Zeus Vernon B. Millan


    Core principle
    • The financial statements of an entity whose functional currency is the
    currency of a hyperinflationary economy shall be stated in terms of the
    measuring unit current at the end of the reporting period.
    • The comparative information for the previous period shall also be
    stated in terms of the measuring unit current at the end of the
    reporting period.
    • Presentation of information as a supplement to unrestated financial
    statements is not permitted.
    • Separate presentation of the financial statements before restatement
    is discouraged.

    AFAR PART 2: Zeus Vernon B. Millan


    Restatement of financial statements

    Statement of financial position


    • Only non-monetary items, statement of financial position amounts not
    already expressed in terms of the measuring unit current at the end of the
    reporting period, are restated when using the constant peso accounting.

    • Monetary items are not restated because they are already expressed in
    terms of the monetary unit current at the end of the reporting period.
     
    • Monetary items are money held and items to be received or paid in fixed or
    determinable amount of money without reference to future prices of specific
    goods or services. Monetary items include monetary assets and monetary
    liabilities.

    AFAR PART 2: Zeus Vernon B. Millan


    Examples of Monetary assets

    1. Cash and cash equivalents


    2. Loans and receivables and their related allowances
    3. Financial assets at amortized cost (debt instruments)
    4. Finance lease receivables
    5. Cash surrender value

    AFAR PART 2: Zeus Vernon B. Millan


    Examples of Monetary liabilities

    1. Financial liabilities at amortized cost (debt instruments), e.g., accounts,


    notes, bonds, and finance lease payables.
    2. Accrued expenses payable in fixed and determinable amounts of money.
    3. Refundable deposits, e.g., security deposits on leases to be returned to
    tenants at the end of the lease term and deposits for returnable
    containers.
    4. Dividends payable

    • All other items that cannot be classified as monetary items are non-
    monetary items, except of “retained earnings.” Retained earnings is
    the a balancing figure after restatement.

    AFAR PART 2: Zeus Vernon B. Millan


    Examples of Nonmonetary assets

    1. Physical assets such as inventories, property, plant, and equipment,


    and investment properties and their related accumulated
    depreciation
    2. Intangible assets
    3. Financial assets measured at fair value
    4. Advances and prepayments not collectible in cash such as
    advances to suppliers, prepaid insurance, prepaid rent, and the
    like.

    AFAR PART 2: Zeus Vernon B. Millan


    Examples of Nonmonetary liabilities

    1. Financial liabilities measured at fair value


    2. Unearned items not payable in cash such as advances from
    customers, unearned rent, deferred revenues, and the like.
    3. Warranty obligations to be settled by future delivery of services (e.g.,
    free repair service) or replacement with other non-monetary items
    (e.g., free replacement of parts or replacement of the good purchased).

    • Equity items such as share capital and share premium are also
    nonmonetary items and thus restated.

    AFAR PART 2: Zeus Vernon B. Millan


    Non-monetary items carried at other than cost

    • As a general guide, only non-monetary measured at cost are restated. The


    following non-monetary items need not be restated:
    1. Non-monetary items measured at net realizable value (NRV) or Fair value
    as at the end of reporting period*.
    2. Non-monetary items measured at revalued amounts as at the end of
    reporting period*.

    • * If the NRV, fair value or revalued amount is determined at a date other


    than the end of reporting period, the nonmonetary item is nevertheless
    restated.

    AFAR PART 2: Zeus Vernon B. Millan


    Restatement of financial statements

    • All items in the statement of profit or loss and other


    comprehensive income are restated.

    AFAR PART 2: Zeus Vernon B. Millan


    Formula for restatement

    *When it is impracticable to determine the historical price indices,


    such as for transactions recurring very frequently, the average
    general price index for the period may be used.

    AFAR PART 2: Zeus Vernon B. Millan


    Gain or loss on net monetary position

    The gain or loss on the net monetary position (also called ‘purchasing
    power gain or loss’) is recognized in profit or loss.

    AFAR PART 2: Zeus Vernon B. Millan


    • OPTIONAL APPLICATIONS: PROBLEM 48 - 3

    AFAR PART 2: Zeus Vernon B. Millan


    OPEN FORUM
    QUESTIONS????
    REACTIONS!!!!!

    AFAR PART 2: Zeus Vernon B. Millan


    END

    AFAR PART 2: Zeus Vernon B. Millan

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