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PRACTICAL INSIGHT
Turkiye Petrol Rafanerileri published in its accounts that cumulative inflation in Turkey was 227% for the three years to December 2002. The entity
restates comparatives and discloses that it uses the Turkish countryside wholesale prices index.
It is preferable that all entities in the same country use the same index.
Monetary items are already stated in the measuring unit at the end of the reporting periods and are therefore not restated.
All nonmonetary items are restated using the change in the general price index between the date that those items were acquired and the current reporting date, unless
they are carried at current values (e.g., net realizable value and market value) at the reporting date, in which case they are not restated.
Any gain or loss on the restatement of nonmonetary items is included in the statement of comprehensive income. It is a requirement to disclose this net gain or loss
separately.
The index is applied from the dates on which accounting for hyperinflation was first applicable to these items.
Some nonmonetary assets are carried at values determined at an earlier date than that of the financial statements. Examples are the revaluation of property or
equipment. In this case, the carrying amounts are restated from the date the assets were revalued.
The restated amounts are compared to (1) recoverable amounts in the case of noncurrent assets, (2) net realizable value in the case of inventory, (3) market value in
the case of current investments, and reduced if they exceed the aforementioned values.
An associate operating in the hyperinflationary economy should have its financial statements restated in accordance with IAS 29.
Opening owners’ equity should be restated using the Standard, but retained earnings and revaluation surplus should not be restated. Any revaluation surplus arising
prior to the application of the Standard is eliminated. Restated retained earnings are the balancing figure in the restated statement of financial position.
STATEMENT OF COMPREHENSIVE INCOME
The statement of comprehensive income is expressed in terms of the measuring unit at the reporting date. Therefore, amounts need to be restated from the dates they
were initially recorded.
PRACTICAL INSIGHT
Norilsk Nicket, a Russian entity, disclosed that the economy of the Russian Federation was considered to be hyperinflationary even though a rate of
inflation was not published. Norilsk Nicket showed a table of conversion factors taken from the consumer price index. It also disclosed that the economy
has ceased to be hyperinflationary and that it will now measure its noncurrent assets and liabilities at cost.
Facts
CASE STUDY 1
An entity keeps three weeks’ inventory of raw materials on hand and has a substantial amount of finished goods inventory. The entity operates in a
hyperinflationary environment.
Required
Advise the entity as to how to restate its inventory.
Solution
A general price index should be used, but the problem will be maintaining records of the acquisition dates of the raw materials and the nature and timing of
the conversion cost to finished inventory. Systems need to be developed to accumulate this information in order to use general price indices. If there are
low inventory levels, the problem is minimized. In this case, the general price indices for the most recent month will be used together with the aged
inventory lists to restate inventory.
The gain or loss on the net monetary position is included in net income.