MONETARY UNIT ASSUMPTION

Monetary Unit Assumption

Monetary unit assumption states that elements of financial statements must be measured in terms of Philippine Peso currency. Monetary unit assumption covers the quantifiability and peso stability notions. In quantifiability, organizations use a common unit of measurement. Transactions and events are identified and expressed or measured in quantitative or financial terms. The common unit of measurement is money. Economic entities use the currency unit of the country where they are located or where they do business. In peso stability, the monetary unit is presumed to be stable over time and retains its purchasing power regardless of fluctuation in value. Meaning, the money used remains constant in value regardless of inflation or deflation. Thus, the changes in the peso purchasing power are not generally accounted for. This assumption underlies the implications of going-concerns concept and historical cost principle.

References : Philippine Accounting Standards (PAS) Philippine Financial Reporting Standards (PFRS)

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