HYPERINFLATION

PAS 29, paragraph 8

It provides that the financial statements of an entity that reports HYPERINFLATIONARY currency whether is is HISTORICAL or CURRENT cost approach SHALL be STATED in terms of measuring unit current @ end of reporting period

Monetary items

It refers to cash and assets that represent a fixed amount of pesos to be RECEIVED or obligations that represent a FIXED AMOUNT of pesos to be PAID

GENERAL PRICE INDEX by BSP

It shows how much the overall level of prices in the economy changed over time

Not RESTATED

Monetary items are...

Restated by applying the general price index from the date of acquisition to the end of reporting period.

Non-monetary items

Purchasing power or price level accounting

Other terms of Constant peso accounting

Hyperinflation

it is indicated by characteristics of economic environment of country

incur FIXED OBLIGATIONS rather than HOLD MONETARY ASSETS

When prices increase it is MORE ADVANTAGEOUS to___

Monetary items

It is defined in PAS 21 as MONEY held and ASSETS/LIABILITIES to be received or paid in FIXED or DETERMINABLE AMOUNT OF MONEY

Nominal Peso Accounting

It is the TRADITIONAL concept of preparing FS based on HISTORICAL cost

SPECIFIC PRICE INDEX

It is the change in the price of a specific good or service, such as food, clothing and car.

Constant peso accounting

It is the restatement of conventional or historical FS in terms of PESO PURCHASING POWER through INDEX NUMBER.

SPECIFIC PRICE CHANGE

It occurs primarily because of change in SUPPLY and DEMAND for a PARTICULAR good or service.

PPE

Carried at amount CURRENT AT DATE other than acqui date

Monetary items

General purchasing power gain or loss is computed ONLY to and it is INCLUDED IN profit or loss

GP It prefers to keeps its wealth in NON-MONETARY ASSETS or in relatively STABLE FOREIGN CURREN GP regards MONETARY AMOUNTS NOT IN TERMS OF LOCAL CURRENCY but in terms of RELATIVELY STABLE FOREIGN CURRENCY Sales and purchases on CREDIT takes place at prices that COMPENSATE for the EXPECTED LOSS of purchasing power during the credit period even if it is SHORT Interest rates, wages and prices are LINKED to a PRICE INDEX The cumulative rate over 3 years is approaching or EXCEEDS 100%

Hyperinflation includes the but not limited to the following :

DEFLATION or FALLING PRICES

In a period of ____ or ____, purchasing POWER GAIN is INCURRED on monetary assets and purchasing POWER LOSS is REALIZED on monetary liabilities

INFLATION or RISING PRICES

In a period of ____ or ____, purchasing POWER LOSS is INCURRED on monetary assets and purchasing POWER GAIN is REALIZED on monetary liabilities

PAS 29 ON FINANCIAL REPORTING IN A HYPERINFLATIONARY ECONOMY

It does not ESTABLISH an absolute rate at which HYPERINFLATION is deemed to arise

CONSTANT PESO ACCOUNTING

It has an objective to report ELEMENTS of the FS in terms of pesos that have the same purchasing power

Hyperinflation

It is a matter of JUDGMENT

Constant peso accounting and current cost accounting

It is a means to accomplish restatement of FS that reports in the CURRENCY OF HYPERINFLATIONARY ECONOMY

GENERAL PRICE INDEX by BSP

The index number used for restatement is called

1. Monetary 2. Nonmonetary

The items in the FS are classified into?

Non-Monetary items

Their PESO amounts reported in the FS DIFFER from the amounts that are ultimately REALIZABLE/PAYABLE

Index # at end of reporting period/index # at beg ate reporting period x Historical cost

WHAT IS THE FORMULA FOR RESTATEMENT

Presentation of the information required as a SUPPLEMENT to unrestated FS is NOT PERMITTED

What is not permitted under PAS 29

The ABSENCE OF RIGHT to receive or an obligation to DELIVER a fixed or determinable amount of money

What is the essential feature of a NON-monetary item?

The RIGHT to receive or an obligation to DELIVER a fixed or determinable amount of money

What is the essential feature of a monetary item?

only NONMONETARY ITEMS

What items are RESTATED?

purchasing power of money has INCREASED also called Deflation

decrease in the general price index means...

purchasing power of money has DECREASED also called INFLATION

increase in the general price index means...

Non-Monetary items

items that CANNOT be classified as MONETARY

Purchasing power

means the goods and services that MONEY CAN BUY

Property, Plant, and Equipment, GW & other intangible asset

the reSTATED amount of 1,2&3 is REDUCED when it EXCEEDS the RECOVERABLE amount

Eliminated

treatment for any revaluation surplus recognized previously