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CONCEPTUAL FRAMEWORK
&
ACCOUNTING STANDARDS

PAS 29 Financial Reporting in

Hyperinflationary Economies

Learning Objectives
• State the core principle under PAS 29.
• Describe the restatement procedures under PAS 29.

Conceptual Framework & Acctg. Standards (by: Zeus Vernon B. Millan) 2

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.

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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.

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Standards (by: 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.

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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%.

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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.

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Standards (by: 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.

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Standards (by: 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

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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.

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Standards (by: 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.

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Standards (by: 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.

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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.

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Standards (by: Zeus Vernon B. Millan)

Restatement of financial statements

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

comprehensive income are restated.

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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.

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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.

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