Chapter 9:

Financial Reporting
in Hyperinflationary
Economies
Devilla, Rica Mae
Ilagan, Jade Alysson
Reyes, Rosette
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 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. 

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 • Under the stable
monetary assumption, the
purchasing power of money is
The Stable assumed to be
stable. Therefore, inflation
Monetary is ignored.
• The exception to this concept
Assumption is hyperinflation. 
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 Purchase Power
Purchase power means the goods and services that money
can buy. 

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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 HYPERINFLATION
Hyperinflation refers to loss of purchasing power of money (inflation) at such
rate that comparison of amounts from transactions and other events that have
occurred at different times, even within the same accounting period is
misleading. 

● 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 judgement.
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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 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 at the end
of the reporting period. 

● The comparative information for the previous period shall be also stated in terms of
the measuring unit current at the end of the reporting period. 

● Presentation of information as a supplement to unrestated financial statement is not

permitted. 

● Separate presentation of the financial statements before restatement is discouraged. 

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

• 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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 EXAMPLE OF MONETARY
ASSETS
Cash and cash equivalents
Loans and receivables and their
related allowances
Financial assets at amortized
cost (debt instrument)
Financial lease receivables
Cash surrender value
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 1. Financial liabilities at amortized cost
(accounts, notes, bonds, and finance lease
payables)
2. Accrued expenses and payable in fixed
and determinable amounts of money.
3. Refundable deposits, e.g., security
Examples of Non- deposits, on the leases to be returned to
tenants at the end of the lease term and
monetary Liabilities deposits for refundable containers.
4. Dividends payable

Ø All other items that cannot be classified

as monetary items are non-monetary
items,  except of "retained earnings".
Retained earnings
is neither monetary nor non-monetary –
it is a residual amount, a balancing
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figure after restatement.
 EXAMPLES OF NON-
MONETARY 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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 1. Financial liabilities measured at fair
value. 
2. Unearned items not payable in cash
such as advances from customers,
unearned rent, deferred revenues, and EXAMPLES
the like.
3. Warranty obligations to be settled by OF NON-
future delivery of services (e.g., free
repair service) or replacement with other
non-monetary items (e.g., free
MONETARY
replacement of parts or replacement of
the good purchased. 
LIABILITIES 
 Equity items such as share capital
and share premium are non-monetary
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items and thus restated. 

“
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 FORMULA FOR RESTATEMENT 
 Restatement is performed by reference to a general price index. 
 The general price index is normally used us the Consumer Price Index – Urban (CPI-U), its
amount is published monthly. 
 Two index number are needed to restate nominal (historical) cost into constant peso. 
 The numerator represents the index number as of the current period (current price index.)
 The denominator represents the index number as of the base period, the date the non-
monetary item has originally been recognized (historical price index)

*When it is impracticable to determine the determine the historical price indices, such as for
transactions recurring very frequently, the average general price index for the period may be
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used. 
 GAIN OR LOSS ON NET MONETARY POSITION 
Inflation- entity incurs purchasing power loss on monetary assets held and realizes
purchasing power gain on its monetary liabilities. 
Deflation – entity incurs purchasing power gain on monetary assets held and realizes
purchasing power gain on its monetary liabilities. 

The gain or loss on the net monetary position (also called purchasing power gain or
loss') shall be recognized in profit or loss.
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 Non-monetary items carried at other than cost

● As a general rule, 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 the end of the reporting period.
2. Non-monetary items measured at revalued amounts as the end of
reporting period.

• If the NRV, fair value od revalued amounts is determined at the date other
than the end of the reporting period, the non-monetary is nevertheless
restated.
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Thank you!
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