Scribd Logo
Upload

Welcome to Scribd!

  • 164 views

    BA 118 1 Hyperinflation Notes

    Uploaded by

    Kathy Ceracas
    1. The document provides guidance on accounting for financial reporting in hyperinflationary economies according to IAS 29. It defines key terms and concepts, outlines measurement and restatement procedures for historical cost and current cost financial statements, and lists required disclosures. 2. Under IAS 29, entities whose functional currency is that of a hyperinflationary economy must restate their financial statements for changes in the general purchasing power of the currency. All monetary and non-monetary items are adjusted using a general price index. 3. The standard does not establish an absolute inflation rate at which an economy becomes hyperinflationary but provides indicators like preference for non-monetary assets and use of foreign currencies in transactions.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd

    BA 118 1 Hyperinflation Notes

    Uploaded by

    Kathy Ceracas
    164 views3 pages
    1. The document provides guidance on accounting for financial reporting in hyperinflationary economies according to IAS 29. It defines key terms and concepts, outlines measurement and restatement procedures for historical cost and current cost financial statements, and lists required disclosures. 2. Under IAS 29, entities whose functional currency is that of a hyperinflationary economy must restate their financial statements for changes in the general purchasing power of the currency. All monetary and non-monetary items are adjusted using a general price index. 3. The standard does not establish an absolute inflation rate at which an economy becomes hyperinflationary but provides indicators like preference for non-monetary assets and use of foreign currencies in transactions.

    Original Description:

    Hyperinflation

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    1. The document provides guidance on accounting for financial reporting in hyperinflationary economies according to IAS 29. It defines key terms and concepts, outlines measurement and restatement procedures for historical cost and current cost financial statements, and lists required disclosures. 2. Under IAS 29, entities whose functional currency is that of a hyperinflationary economy must restate their financial statements for changes in the general purchasing power of the currency. All monetary and non-monetary items are adjusted using a general price index. 3. The standard does not establish an absolute inflation rate at which an economy becomes hyperinflationary but provides indicators like preference for non-monetary assets and use of foreign currencies in transactions.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    164 views3 pages

    BA 118 1 Hyperinflation Notes

    Uploaded by

    Kathy Ceracas
    1. The document provides guidance on accounting for financial reporting in hyperinflationary economies according to IAS 29. It defines key terms and concepts, outlines measurement and restatement procedures for historical cost and current cost financial statements, and lists required disclosures. 2. Under IAS 29, entities whose functional currency is that of a hyperinflationary economy must restate their financial statements for changes in the general purchasing power of the currency. All monetary and non-monetary items are adjusted using a general price index. 3. The standard does not establish an absolute inflation rate at which an economy becomes hyperinflationary but provides indicators like preference for non-monetary assets and use of foreign currencies in transactions.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    1

    BA 118.1 / 2nd Semester, SY 2012-2013 IAS 29: FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES

    SCOPE AND BACKGROUND IAS 29 shall be applied to the financial statements, including the consolidated financial statements, of any entity whose functional currency is the currency of a hyperinflationary economy. IAS 21, The Effects of Changes in Foreign Exchange Rates, requires an entity to prepare its FS using its functional currency. An entitys functional currency is the currency of the primary economic environment in which it operates. Reporting the financial performance, financial position and cash flows of an entity whose functional currency is the currency of a hyperinflationary economy without restatement is not useful. Example of countries under hyperinflation (announced by IASB): Belarus, Venezuela, Congo Key words and concepts: Monetary assets and liabilities Monetary items are money held and items to be received or paid in money. Non-monetary assets and liabilities Accounts other than monetary assets and liabilities (IAS 21, PAR 16). Inflation is measured in GENERAL prices, not prices of specific goods. Gain or loss on net monetary position - Monetary items are subject to the effects of changes in price levels. Under hyperinflationary accounting, monetary items lose purchasing power because their fair value does not change with changes in the general price index. Consequently, monetary assets generate losses because they expose the entity to decreasing purchasing power. Conversely, monetary liabilities generate gains for the entity in real terms (PAR 27 and 28). Illustrations: Ex 1. On 31 December 20X1 COMPANY A was formed when its owner contributed CU100,000 in cash to the entity. COMPANY A held the cash throughout 20X2 and it did not enter into any other transactions. In 20X2 general price levels rose by 100 per cent (i.e., the relevant general price index rose from 100 to 200 in 20X2) in the primary economic environment in which COMPANY A operates. Ex 2. The facts are the same as in example 1. However, in this example, on 1 January 20X2 COMPANY A used the cash contributed by the owner to purchase a plot of land for CU100,000 (i.e., COMPANY A held only land throughout 20X2 and it did not enter into any other transactions). The entity intends to build a factory on the land in which it intends to manufacture a product. In 20X2 general price levels rose by 100 per cent in the primary economic environment in which COMPANY A operates. Land is a non-monetary asset. Indicators of Hyperinflation The Standard did NOT establish an absolute rate at which an economy is considered hyperinflationary. Judgment is to be used after assessing the following characteristics mentioned in PAR 3: 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. 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. 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. Interest rates, wages and prices are linked to a price index. The cumulative inflation rate over three years is approaching, or exceeds, 100 percent.

    MEASUREMENT PAR 8. The financial statements of an entity that reports in the currency of a hyperinflationary economy should be stated in terms of the measuring unit current at the balance sheet date. Comparative figures for prior period(s) should be restated into the same current measuring unit. Illustrations (present the restated Statement of Financial Position and Statement of Comprehensive Income): Ex 3 The facts are the same as in example 1. COMPANY As nominal (i.e., unrestated) trial balance at 31 December 20X1 and 20X2 is as follows: (Note: ( ) indicates a credit) 31 December 20X2 (CU 100,000) CU 100,000 31 December 20X1 (CU 100,000) CU 100,000 -

    Share capital Cash and cash equivalents

    Ex 4 The facts are the same as in example 2. COMPANY As nominal (i.e., unrestated) trial balance at 31 December 20X1 and 20X2 is as follows: (Note: ( ) indicates a credit) 31 December 20X2 (CU 100,000) CU 100,000 31 December 20X1 (CU 100,000) CU 100,000 -

    Share capital PPE (land)

    PROCEDURES FOR RESTATING HISTORICAL COST FINANCIAL STATEMENTS SoFP (PAR 11-25) Apply a general price index. Monetary items are NOT restated. Assets and liabilities linked by agreement to changes in prices (e.g., index-linked bonds and loans) are adjusted in accordance with the agreement and presented at this adjusted amount in the restated statement of financial position. All other assets and liabilities are non-monetary: o Some non-monetary items are carried at amounts current at the end of the reporting period, such as net realisable value and fair value, so they are not restated. o All other non-monetary assets and liabilities are restated. o If carried at cost or cost less depreciation (expressed at amounts current at their date of acquisition) apply the change in a general price index from the date of acquisition to the end of the reporting period. o The restated amount of a non-monetary item is reduced when it exceeds its recoverable amount. (PAR 19) o At the beginning of the first period of application of this section, the components of equity, except retained earnings and revaluation surplus, are restated by applying a general price index from the dates the components were contributed or otherwise arose. Restated retained earnings are derived from all the other amounts in the restated statement of financial position. Revaluation surplus is eliminated. SOCI (PAR 26) All items shall be expressed in terms of the measuring unit current at the end of the reporting period. All items are restated from the dates when the items were initially recognised in the financial statements. If general inflation is approximately even throughout the period, and the items of income and expense arose approximately evenly throughout the period, an average rate of inflation may be appropriate The net gain or loss arising from exposed monetary items are reported in the SOCI. SCF (PAR 33) All items shall be expressed in terms of the measuring unit current at the end of the reporting period.

    PROCEDURES FOR RESTATING CURRENT COST FINANCIAL STATEMENTS SoFP (PAR 29) Apply restatement rules for historical cost FS unless items are reported at current cost. SOCI (PAR 30) All items shall be expressed in terms of the measuring unit current at the end of the reporting period. All items are restated from the dates when the items were initially recognised in the financial statements, even if at current cost. ECONOMY CEASING TO BE HYPERINFLATIONARY Entity shall treat the amounts expressed in the presentation currency at the end of the previous reporting period as the basis for the carrying amounts in its subsequent financial statements. DISCLOSURES An entity to which this section applies shall disclose the following: the fact that financial statements and other prior period data have been restated for changes in the general purchasing power of the functional currency. the identity and level of the price index at the reporting date and changes during the current reporting period and the previous reporting period. amount of gain or loss on monetary items.

    Source: Ifrs.org

    You might also like