Proj 2 Ae02mw Team 14

Table of Contents
Page
HYPERINFLATION
FINANCIAL REPORTING IN HYPERINFLANATORY ECONOMIES 3
PRICE LEVEL CHANGES AND PURCHASING POWER 4
HYPERINFLATION 5
INDICATORS OF HYPERINFLATION 7
CORE PRINCIPLE 7
RESTATEMENT OF FS 8
HISTORICAL COST (NOMINAL COST) TO CONSTANT PESO 8
Illustration 1: Identifying monetary and non-monetary items 10
Non-monetary assets carried at cost 11
Non-monetary assets carried at other than cost 12
Non-monetary assets carried at NRV or fair value 12
Revalued non-monetary items 12
Impairment after restatement 13
Investment in associate 13
Borrowing costs 14
Index-linked assets or liabilities 14
Assets acquired through issuance of non-interest bearing liabilities 14
First period application of PAS 29 14
Statement of profit or loss and other comprehensive income 15
Formula for restatement 15
Gain or loss on net monetary position 16
Statement of cash flows 17
Corresponding figures 17
Summary of restatement procedures - Historical to Constant peso 17
TEAM 14% 1
Illustration 2: Restatement of FS - Historical to Constant peso 18
Illustration 3: Gain or loss on net monetary position 26
Illustration 4: Non-monetary items carried at other than cost 28
Illustration 5: Equity - First time adoption 29
Illustration 6: Approximation of average price index 30
CURRENT COST ACCOUNTING 30
Determining current cost 31
Holding gains and losses 31
FS under current cost accounting 31
Summary of restatement procedures 32
Illustration 1: Restatement of FS - Historical to current cost 33
CURRENT COST TO CONSTANT PESO 38
Gains & losses on net monetary position & holding gains & losses 39
Summary of restatement procedures 39
Illustration 1: Restatement of FS - Current cost to Constant peso 40
Illustration 2: Current cost to Constant peso profit or loss 45
Illustration 3: Depreciation expense 48
Illustration 4: Cost of goods sold and ending inventory 49
TAXES 51
DEFERRED TAXES 52
Illustration 1: Restatement of deferred tax liability 52
CONSOLIDATED FINANCIAL STATEMENTS 53
DIFFERENT ENDS OF REPORTING PERIOD 53
ECONOMIES CEASING TO BE HYPERINFLANATORY 53
REVIEW OF RELATED LITERATURE 54
TEAM 14% PROFILE 61
FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES
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Conventional financial statements are prepared using the stable monetary assumption. The
monetary unit assumption states that money is the appropriate unit of measurement for economic
activities. The purchasing power of money assume to be stable and, therefore, price level changes
(inflation and deflation) are ignored.
Source: https://psa.gov.ph/content/consumer-price-index-philippines-2006100-2016-annual-report
= retrieved December 1, 2019.
However, when the effect of the price level changes on the purchasing power of money is no longer
negligible, the usefulness of the financial statements prepared under the stable monetary unit
assumption is significantly undermined. The valuation of assets and liabilities becomes misleading and
the comparability of financial statements is significantly reduced. Therefore, in such instances, the
financial statements need to be restated to improve the usefulness.
Source: Intermediate Financial Accounting Part 3, 2016, Millan Z V, page 474
Contributor: Chriezle Mae Sanchez
PRICE LEVEL CHANGES AND PURCHASING POWER
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Price level change is the increase or decrease in the price of goods or services in a given market during
a given interval. Price level changes include (a) general price level changes and (b) specific price level
changes.
General price level change is increase or decrease in the overall level of prices of goods or services
throughout the economy. Specific price level change is increase or decrease in the price of the specific
good or service.
Source:http://rsso07.psa.gov.ph/article/may-2019-consumer-price-index-cpi-inflation-rate-ir-
purchasing-power-peso-ppp-central = retrieved December 1, 2019
Prices changes over time as the result of various specific or general political, economic and social
forces. Specific forces such as changes in supply and demand the technological changes may cause
individual prices to increase or decrease significantly and independently of each other (i.e., general and
specific price levels may change at different s and even in opposite directions, specific price level may
decrease but general price level may still increase). General forces may result sin changes in the
general purchasing power of money.
General price level changes are measured using a general price index (normally the Consumer Price
Index, CPI)
Purchasing power means the good that goods and services that money can buy.
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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 has increased
– a condition known as deflation.
Scope
PAS 29 shall be applied to the financial statements, including the consolidated financial statements, of
any entities whose functional currency is the currency of hyperinflationary economy.
In a hyperinflationary economy, reporting of operating results and financial position in the local
currency without restatement is not useful. Money losses purchasing power such a rate that
comparison of amounts from transactions and other events that have occurred at different times, even
within the same accounting period, is misleading.
Source: Intermediate Financial Accounting Part 3, 2016, Millan Z V, page 474-

475
HYPERINFLATION
Hyperinflation refers to loss of purchasing power of money at such a 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”. It is a condition in which the general price level (as
opposed to specific price level) with in the specific economy increases rapidly wherein the functional
currency loses its real value very quickly, normally at an accelerating rate.
A noted cause of hyperinflation is the massive and rapid increase in the amount of money circulated
that is not supported by a corresponding growth in the output of goods and services. This creates an
imbalance between the supply and demand for money accompanied by a complete loss of confidence
in the money.
Hyperinflation was experienced in the Philippines during World War II where the circulated money
under the Japanese occupation was called “Mickey Mouse Money” because it is similar to play money
and is next to worthless.
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Hyperinflation is inflation of at least fifty percent per month. In other words, prices are rising by at
50% or more monthly. We often use the term ‘runaway inflation‘ with a similar meaning.
Hyperinflation is ruinously high increases in prices. It occurs when an economy’s monetary system is in
near total collapse. The currency of a country suffering from hyperinflation is almost worthless as a
medium of exchange.
Source: https://www.thebalance.com/what-is-hyperinflation-definition-causes-and-examples-3306097
= retrieved December 1, 2019
The term inflation refers to rising prices. The opposite of inflation, i.e., when prices decline, is
deflation.
Excessive deficit spending, which governments usually fund by printing more money, is the main cause
of run-away inflation.
However, some social-economists believe that rather than hyperinflation leading to social breakdown, it
is the other way round. In other words, they say that social breakdown causes runaway inflation.
Source:https://marketbusinessnews.com/financial-glossary/hyperinflation-definition-
meaning/

Identifying Hyperinflation
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PAS 29 does not establish an absolute rate at which hyperinflation is deemed to arise. This is a matter
of judgement.
INDICATORS OF HYPERINFLATION
Hyperinflation is indicated by characteristics of the economic environment of a country which include

but are not limited to the following:
1. The general population prefers to keep it wealth in non-monetary assets or in a relatively stable
currency. Amount of local currency held are immediately invested to maintain the purchasing
power.
2. The general population regards monetary amount 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 rate, wages and prices are linked to a price index; and
5. The cumulative inflation rate over three years is approaching, or exceeds, 100%
Contributor: Almira N. Concon
CORE PRINCIPLE
The financial statement of an entity whose functional currency is the currency of a hyperinflationary
economy, whether they are based on historical cost approach or current cost approach, shall be
stated in terms of the measuring unit at the end of the reporting period. The corresponding
figures for the previous period required by PAS 1 Presentation of Financial Statement and any
information in respect of earlier period shall also be stated in terms of the measuring unit current
at the end of the reporting period.
The gain or loss on the net position shall be included on profit or loss and separately disclosed.
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Presentation of the information required by PAS 29 as a supplement to understated financial statement
is not permitted. Furthermore, separate presentation of the financial statement before restatement is
discouraged.
RESTATEMENT OF FINANCIAL STATEMENT
The financial statement of an entity operating in a hyperinflationary economy, whether prepared based
on the historical cost approach or current cost approach should be restated using the constant
peso accounting.
The restatement of financial statement in accordance w/ PAS29 requires the application of certain
procedures as well as judgement. The consistent application of these procedures and judgements
from period to period is more important than the precise accuracy of the resulting amount included
in the restated financial statement.
Two (2) restatement procedure under PAS 29 are:
a. Historical cost (Nominal cost) to Constant Peso

b. Current cost to Constant Peso
Source: Intermediate Financial Accounting Part 3, 2016, Millan Z V, pages 477-

478
HISTORICAL COST (NOMINAL COST) TO CONSTANT PESO
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.
Examples of monetary assets:
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1. Cash and cash equivalents
2. Loans and receivables and their related allowances
3. Financial assets at amortized cost
4. Finance lease receivables
5. Prepaid interest, except when the prepaid interest is treated as a valuation account
(deduction) to a financial liability, e.g., discount on note payable.
6. Cash under value
Examples of monetary liabilities:
1. Financial liabilities at amortized cost, 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 “related
earnings”. Retained earnings is neither monetary nor non-monetary – it is a residual amount, a
balancing 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.
Examples of non-monetary 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 non-monetary items and thus restated.
Only financial assets and liabilities measured at amortized cost are considered monetary items.
Financial assets and liabilities measured at fair value are non-monetary items because fair values
fluctuate rendering these items not collectible or payable in fixed or determinable amount of cash.
Also, advances, prepayments and unearned items not collectible or payable in fixed or determinable
amount of cash are non-monetary items. For example,
(i) advances to suppliers are not collectible in cash but rather settled by the receipt of
inventories; and
(ii) advances to customers are not payable in cash but rather settled by delivering
inventories to the customer.
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Source: Intermediate Financial Accounting Part 3, 2016, Millan Z V, pages 479-480
Contributor: Ojims Christjohn C. Cadunggan
Illustration 1: Identifying monetary and non-monetary items

The information given below is taken from the records of ABC Co.
Cash 15 Trade accounts payable 40
Accounts receivable- net of allowance 40 Income tax payable 10
Financial assets held for trading 15 Utilities payable 20
Financial assets at FVOCI 20 Cash dividends payable 10
Financial assets at amortized cost 60 Bonds payable 40
Inventories 60 Warranty obligation 20
Advances to suppliers 10 Deferred revenue 15
Prepaid expenses 5 Share capital 130
Property, plant, and equipment 80 Share premium 20
Cash surrender value 20 Revaluation surplus 10
Investment in funds consisting of: Cumulative translation differences 20
Share of stocks 5 Non-controlling interest 5
Bonds measurement at
amortized cost 30 Retained earnings 20
Total assets 360 Total liabilities and equities 360
Requirement: Compute for the net monetary items.
Solution:
Cash 15 Trade accounts payable 40

Accounts receivable- net of allowance 40 Income tax payable 10
Financial assets at amortized cost 60 Utilities payable 20
Cash surrender value 20 Cash dividends payable 10
Investment in funds consisting
of: Bonds payable 40
Bonds measured at
amortized cost 30
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Total monetary
Total monetary assets 165 liabilities 120
Net monetary items = Total monetary assets – Total monetary liabilities

Net monetary items = (165-120) = 45
All the other items except retained earnings are considered non-monetary items.

Non-monetary assets carried at cost
Most non-monetary items are carried at cost or cost less depreciation; hence they are expressed at
amounts current at their date of acquisition. The restated cost, or cost less depreciation, of each item
is determined by applying to its historical cost and accumulated depreciation the change in a general
price index from the date of acquisition to the end of the reporting period.
For example, property, plant and equipment, inventories of raw materials and merchandise, goodwill,
patents, trademarks and similar assets are restated from the dates of their purchase. Inventories of
party-finished and finished and finished goods are restated from the dates on which the cost of
purchase and of conversion were incurred.
Source: Intermediate Financial Accounting Part 3, 2016, Millan Z V, page 481-

482
Non-monetary assets carried at other than cost
As a general guide, only non-monetary measured at cost are restated . Again, monetary items
are not restated because they are already expressed in terms of the monetary unit current at the end
of the reporting period.
Non-monetary items not carried at cost may not be restated if they are already stated at
measuring unit current at the end of reporting period. The following no-monetary items carried at
other than cost need not be restated.
1. Non-monetary items measured at net realizable value (NRV) or Fair value as at the end of
reporting period.
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2. Non-monetary items measured at revalued amounts as at the end of reporting period.
Non-monetary assets carried at NRV or fair value
Some non-monetary items are carried at amounts current at the end of the reporting period, such as
net realizable value (NRV) and fair value, so they are not restated.
Examples: The following non-monetary items need to be restated;
a. Inventories measured at net realizable value (NRV) as at the end of reporting period.
b. Held for trading securities and FVOCI investments measured at fair value as the end of
reporting period.
c. Investment properties measured at fair value as at the end of reporting period.
d. Biological assets and held for sale assets measured at fair value less costs to sell as at the
end of reporting period.

Revalued non-monetary items
Some non-monetary items are carried at amounts current at dates other than that of acquisition of that
of the statement of financial position, for example property, plant and equipment that has been
revalued at some earlier date. In these cases, the carrying amounts are restated from the date of
the revaluation.
Needless to say, if the item of property, plant and equipment or intangible asset is revalued as at the
end of the current reporting period, restatement is not necessary.
Examples: Property, plant and equipment and intangible assets that are:
a. revalued as at the end of reporting period need not be restated.
b. revalued at some other date are restated from the date of revaluation.

483
Impairment after restatement
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The restated amount of a non-monetary item is reduced, in accordance with appropriate PFRSs, when
it exceeds its recoverable amount. For example, restated amounts of property, plant and equipment,
goodwill, patents and trademarks are reduced to recoverable amount and restated amounts of
inventories are reduced to net realizable value.

Investment in associate
Prior to computing the share in the profit or loss and net assets of an associate operating in a
hyperinflationary economy, the associate’s financial statements should be restated first under PAS 29.
When the restated financial statements of the investee are expressed in a foreign currency, they are
translated at closing rates in accordance with PAS 21 The Effects of Changes in Foreign Exchange
Rates.

Borrowing costs
The impact of inflation is usually recognized in borrowing costs. It is not appropriate both to restate the
capital expenditure financed by borrowing and to capitalize that part of the borrowing costs that
compensates for the inflation during the same period. This part of the borrowing costs is recognized as
an expense in the period in which the costs are incurred.

Index-linked assets or liabilities
Assets and liabilities linked by agreement to changes in prices, such as index linked bonds and loans,
are adjusted in accordance with the agreement in order to ascertain the amount outstanding at the
end of the reporting period. These items are carried at this adjusted amount in the restated statement
of financial position.
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Assets acquired through issuance of non-interest bearing liabilities
An entity may acquire assets under an arrangement that permits it to defer payment without incurring
an explicit charge. For example, an entity acquires equipment by issuing a noninterest-bearing note
payable. Where it is impracticable to impute the amount of interest, such assets are restated from the
payment date and not the date of purchase.

First period application of PAS 29
At the beginning of the first period of application of PAS 29, the components of owners' equity, except
retained earnings and any revaluation surplus, are restated by applying a general price index from the
dates the components were contributed of otherwise arose. Any revaluation surplus that arose in
previous periods is eliminated. Restated retained earnings are derived from all the other amounts in
the restated statement of financial position, i.e.., as a balancing figure. At the end of the first period
and in subsequent periods, all components of owners' equity are restated by applying a general price
index from the beginning of the period or the date of contribution, if later. The movements for the
period in owners' equity are disclosed in accordance with PAS 1.
Statement of profit or loss and other comprehensive income
PAS 29 requires that all items in the statement of profit or loss and other comprehensive income should
be expressed in terms of the measuring unit current at the end of the reporting period. Therefore, all
amounts need to be restated by applying the change in the general price index from the dates when
the items if income and expenses were initially recorded in the financial statements. When it is
impracticable to determine the general price indices on the dates the income and expenses were
initially recorded in the financial statements such as for sale and purchase transactions, an entity may
use the average general price index for the period.

Formula for restatement
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Restatement is performed by reference to a general price index. PAS 29 requires the use of general
price index that reflects changes in general purchasing power. It is preferable that all entities that
report in the currency of the same economy use the same index.
The general price index normally used is the Consumer Price index urban (CPI-U), its amount is
published monthly.
Two index numbers 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).
The formula for restatement is:
Current price index (index as of end of reporting period)
Historical Cost x Historical price index*(index as of acquisition as of acquisition date)
*However, as stated earlier, when it is impracticable to determine the historical price indices such as
for transactions meaning very frequently, an entity may use the average general price index for the
period.

Gain or loss on net monetary position
In a period of inflation, an entity incurs purchasing power loss on monetary assets held and realizes
purchasing power gain on its monetary liabilities.
On the other hand, in a period of deflation, an entity incurs purchasing power gain on monetary assets
held and realizes purchasing power gain on its monetary liabilities.
For instance, let us assume I borrowed one peso (P1.00) from you 100 years ago which remains
unpaid as of today. Which of us do you think realizes gain? The answer is simple, it would have been
me. With one peso a hundred years ago, I would have been able to buy a carabao. If I will pay you
back your one peso today, you would probably only be able to buy one “Maxx”. I will recognize a
purchasing power gain on my monetary liability while you recognize a purchasing power loss on your
monetary asset because the value of P1.00 now as companied to its value 100 years ago has
substantially deceased.
From the example above, we can conclude that an entity is better off incurring monetary liabilities in a
period rising prices (inflation) than holding monetary assets.
The gain or loss on the net monetary position (also called ‘purchasing power gain or loss’) shall be
included in profit or loss and separately disclosed.
The gain or loss on net monetary position or purchasing power gain or loss is computed as follows:
Net monetary items (monetary assets less monetary liabilities),
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end, - Historical xx
Less: Net monetary items, end. – Restated xx
Gain (loss) on net monetary position xx

486
Statement of cash flows
PAS 29 requires that all items in the statement of cash flows should be expressed in terms of the
measuring unit current at the end of the reporting period.

Corresponding figures
Corresponding figures for the previous reporting period, whether they were based on a historical cost
approach or a current cost approach, are restated by applying a general price index so that the
comparative financial statements are presented in terms of the measuring unit current at the end of
the reporting period. Information that is disclosed in respect of earlier periods is also expressed in
terms of the measuring unit current at the end of the reporting period.

Summary of restatement procedures – Historical to Constant peso

1. Identify monetary and non-monetary items because only non-monetary statement of
financial position items not already stated at the measuring unit current as of end of
reporting period are restated.
2. Non-monetary items stated at net realizable value (NRV) or fair value as at the end of
reporting period need not to be restated. Financial instruments and other items measured at
fair value and inventories measured at net realizable value are not restated.
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3. Non-monetary items that are measured at revalued amounts where revaluation was made
at some earlier date shall be restated from the date of the revaluation. If revaluation is as at
the end of reporting period, no restatement is necessary.
4. If it is the entity’s first time to apply PAS 29, any revaluation surplus in equity is eliminated.
The revalued non-monetary items shall be restated from their acquisition dates to the end
of reporting period.
5. The restated amount of a non-monetary item is reduced when it exceeds its recoverable
amount, e.g., inventories are reduced to their NRV in accordance with PAS 2 and PPE and
intangible assets are reduced to their recoverable amounts in accordance with PAS 36.
6. When comparative statements are prepared, both monetary and non-monetary items of the
preceding period are expressed in terms of the index number at the end of the current year.
7. Retained earnings is the balancing figure in the restated statement of financial position.
8. Determine the current price index as of end of reporting period by reference to a general
price index, most commonly the “CPIU”. This will be the numerator in all fractions used in
the restatement procedures.
9. Determine the historical price indices for items to be restated. These will be the
denominators in the fractions used in the restatement procedures. If it is impracticable to
determine the historical price indices, the average price index may be used.
10. All items in the statement of profit or loss and other comprehensive income are restated.
11. The gain or loss on net monetary position (general purchasing power gain or loss) is
determined from the monetary items. The gain or loss on net monetary position is
recognized in profit or loss.
12. To check the accuracy of the derived restated amounts, a restated statement of changes in
equity is prepared. The balances of equity accounts in the restated statement of changes un
equity should tally with the balances in the restated statement of financial position.
13. All items in the statement of clash flows shall be restated to the measuring unit current as
of the end of reporting period.
Source: Intermediate Financial Accounting Part 3, 2016, Millan Z V, page 486-487

Illustration 2: Restatement of FS - Historical to Constant peso
ABC Co. operates in a hyperinflationary economy. Its unrestated financial statements are provided
below:
ABC Company
Statement of financial position
As of December 31, 20x2
20x2 20x1
ASSETS
Cash P 20,000 P 15,000
Accounts receivable 40,000 30,000
Allowance for doubtful accounts (10,000) (5,000)
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Inventory (at cost) 50,000 40,000
Land (at cost) 100,000 100,000
Building (at cost) 500,000 500,000
Accumulated depreciation (200,000) (150,000)
Total assets P 500,000 P 530,000
LIABILITIES AND EQUITY
Accounts payable P 20,000 47,000
Loan payable 100,000 80,000
Total liabilities 120,000 127,000
Share capital 300,000 300,000
Retained earnings 80,000 103,000
Total equity 380,000 403,000
Total liabilities and equity P 500,000 P 530,000
ABC Company
For the year ended December 31, 20x2
Sales P400,000
Cost of sales:
Inventory, January 1 40,000
Purchases 300,000
Total goods available for sale 340,000
Inventory, December 31 (50,000) (290,000)
Gross income 110,000
Depreciation expense (50,000)
Distribution costs (35,000)
Bad debts expense (5,000)
Finance cost (10,000)
Profit before tax 10,000
Income tax expense (3,000)
Profit for the year 7,000
Other comprehensive income -
Total comprehensive income for the year P7,000
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ABC Company
Statement of changes in equity
Share Retained
capital earnings Total equity
Balance, Jan. 1, 20x2 P300,000 P103,000 P403,000

Changes in equity for 20x2
Dividends (30,000) (30,000)
Total comprehensive income - 7,000 7,000
Balance, Dec. 31, 20x2 P300,000 P80,000 P380,000
ABC Company
Cash flows from operating activities:
Profit before taxation P10,000
Adjustments for:
Depreciation expense 50,000
60,000
Increase in accounts receivable, net (5,000)
Increase in inventory (10,000)
Decrease in accounts payable (27,000)
Cash generated from operations 18,000

Income taxes paid (3,000)
Net cash from operating activities 15,000
Cash flows from investing activities:

Cash flows from financing activities:
Proceeds from long-term borrowings 20,000
Dividends paid (30,000)
Net cash used in financing activities (10,000)
Net increase in cash 5,000

Cash at the beginning of period 15,000
Cash at end of period P20,000
Additional information:
· The land and building were acquired on April 1, 20x0.
· The share capital was issued on March 1, 20x0.
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· Sales, purchases, and expenses (except interest expense) were incurred evenly during the
year.
· Interest expense was recognized and paid on December 31, 20x2.
· Dividends of P30,000 were declared and paid on December 31, 20x2.
· Selected values of general price indices (CPI) are shown below:
March 1, 20x0………………………………..100
April 1, 20x0…………………………………...100
Average for 20x1…………………………….110
December 31, 20x1…………………………120
Average for 20x2…………………………….125
December 31,20x2………………………….140
Requirement: Prepare constant peso financial statements.
ABC Company
Statement of financial position
(Restated in terms of December 31, 20x2 current pesos)
20x2
Historical Fraction Restated
ASSETS
Cash P20,000 N/A P20,000
Accounts receivable 40,000 N/A
40,000
Allowance for doubtful accounts (10,000) N/A (10,000)
Inventory (at cost) 50,000 140/125 56,000
Land (at cost) 100,000 140/100 140,000
Building (at cost) 500,000 140/100 700,000
Accumulated depreciation (200,000) 140/100 (280,000)
Total assets P500,000 P666,000
Accounts payable P20,000 N/A P20,000

Loan payable 100,000 N/A 100,000
Share capital 300,000 140/100 420,000

Retained earnings 80,000 (squeeze) 126,000
Total equity 380,00 546,000
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Total liabilities and equity P500,000 P666,000
20x1
ASSETS
Cash P15,000 140/120 P17,500
Accounts receivable 30,000 140/120 35,000
Allowance for doubtful accounts (5,000) 140/120 (5,833)
Inventory (at cost) 40,000 140/110 50,909
Land (at cost) 100,000 140/100 140,000
Building (at cost) 500,000 140/100 700,000
Accumulated depreciation (150,000) 140/100 (210,000)
Total assets P530,000 P727,576
Accounts payable P47,000 140/120 P54,833

Loan payable 80,000 140/120 93,333
Share capital 300,000 140/100 420,000

Retained earnings 103,000 (squeeze) 159,409b
Total equity 403,000 579,409a
Total liabilities and equity P530,000 P727,576
Observe the following:

• Only the non–monetary items in the current period financial statements were restated. However, all
items (both monetary and non–monetary items) were restated for the 20x1 comparative statement.
• The numerator in the fractions used is the current price index while the denominators are the
historical price indices, except for inventories which were purchased evenly during the periods making
it impracticable to determine the historical price indices (i.e.., price indices at dates of purchase) , thus,
the average price indices (i.e., 120 in 20x2 and 105 in 20x1) were used.
• The historical price index (denominator) used to restate the monetary items in the corresponding
figures is the price index as of December 31, 20x1 (i.e.., 110) because such monetary items were
stated in terms of the measuring unit current as at that date.
• Retained earnings in 20x2 and 20x1 were “squeezed” as balancing figures.
a
579, 409 = 727, 576 — 148,167
TEAM 14% 21
b
159, 409 = 579, 409 — 420,000
ABC Company
(Restated to December 31, 20x2 current pesos)
Sales P400,000 140/125 P448,000
Cost of sales:
Inventory, Jan. 1 P40,000 140/110 P50,909
Purchases 300,000 140/125 336,000
Total goods
available for sale 340,000 386, 909
Inventory, Dec. 31 (50,000) 290,000 140/125 (56,000) (330,909)
Gross income 110,000 117,091

Depreciation
Expense (50,000) 140/100 (70,000)
Distribution costs (35,000) 140/125 (39,200)
Bad debts expense (5,000) N/A (5,000)
Finance Cost (10,000) 140/140 (10,000)
Gain on net monetary
position 7,060
Profit before tax 10,000 (49)
Income tax
Expense (3,000) 140/125 (3,360)
Profit for the year 7,000 (3,409)

Other comprehensive income - -
Total comprehensive income
for the year 7,000 P(3,409)
Observe the following:

• If it is impracticable to determine the historical price index (price index as of date of acquisition or
incurrence of costs), the average price index is used.
• The numerator used in the fractions is the current price index as of December 31, 20x2, end of
financial reporting period.
• The restated cost of goods sold is “squeezed” after restating the beginning and ending inventories
and purchases.
• The gain on net monetary position (purchasing power gain) is recognized in profit or loss. See
computation below.
Computation of gain or loss on net monetary position (purchasing power gain or loss)
TEAM 14% 22
Total monetary assets, Dec. 31, 20x2, Historical cost:
Cash P20,000
Accounts receivable 40,000
Allowance for doubtful accounts (10,000) P50,000
Total monetary liabilities, Dec. 31, 20x2, Historical cost:
Accounts payable 20,000
Loan payable 100,000 (120,000)
Net monetary items, Dec. 31, 20x2, Historical
cost (a) (70,000)
Total monetary assets, Dec. 31, 20x1, Restated:
Cash 17,500
Allowance for doubtful accounts (5,833) 46,667
Total monetary Liabilities, Dec. 31, 20x1, Restated:
Accounts payable 54,833
Loan payable 93,333 (148,167)
Net monetary items, Dec. 31, 20x1, Restated (101,500)
Increases in net monetary items during 20x2:
Sales, restated 448,000
Decreases in net monetary items during 20x2:
Purchases, restated (336,000)
Distribution costs, restated (39,200)
Finance cost, restated (10,000)
Income tax expense, restated (3,360)
Dividends paid, restated (30,000 x 140/140) (30,000) (423,560)
Net monetary items, Dec. 31, 20x2, Restated (b) (77,060)
Gain on net monetary position (a-b) P7,060
ABC Company
Statement of changes in equity
For the year ended in December 31, 20x2
Share Retained Total

capital, earnings, equity,
restated restated restated
Balance, Jan. 1, 20x2, restated P420,000 P159,409 P579, 409

Dividends restated (30,000) (30,000)
Total comprehensive income, restated - (3,409) (3,409)
Balance, Dec. 31, 20x2, restated P420,000 P126,000 P546,000
TEAM 14% 23
Observe that the computed December 31, 20x2 balances of restated retained earnings and restated
total equity amounting to P126,000 and P546,000, respectively, tally with the balances in the restated
statement of financial position.
ABC Company
For the year ended in December 31, 20x2
Cash flows from operating activities:

Loss before taxation P(49)
Adjustments for:
Depreciation expense 70,000
69,951
Increase in accounts receivable, net (30,000 – 29, 167) (833)
Increase in inventory (56,000 – 50,909 (5,091)
Decrease in accounts payable (20,000 – 54, 833) (34,833)
Cash generated from operations 29,194
Income taxes paid (3,360)
Net cash from operating activities 25,834
Cash flows from investing activities:

Cash flows from financing activities:
Proceeds from long-term borrowings (100,000 – 93,000) 6,667
Dividends paid (30,000)
Net cash used in financing activities (23,333)
Net increase in cash 2,500
Cash at beginning of period 17,500
Cash at end of period 20, 000
Observe that the amounts included in the restated statement of cash flows are derived from the
restated statements of financial position and comprehensive income.

495
Illustration 3: Gain or loss on net monetary position
ABC Co. has the following information during 20x1:

Sales (all on account) made evenly throughout 20x1 400,000
TEAM 14% 24
Cash collections from customers on account made evenly throughout 20x1 220,000
Purchase (all on account) made evenly throughout 20x1 throughout 20x1 200,000
Cash payments to suppliers on account made evenly throughout 20x1 180,000
Land purchased for cash on February 1, 20x1 40,000
Equipment purchased on credit on March 1, 20x1 and paid on April 1, 20x1 30,000
Proceeds on a loan taken on July 1, 20x1 100,000
Investment in held for trading securities sold on August 1, 20x1 60,000
Cash dividends declared on October 1, 20x1 and paid on December 31, 20x1 50,000
Operating expenses paid evenly throughout 20x1 120,000
Share capital issued on December 31, 20x1 80,000
Partial payment on the loan on December 31, 20x1
Monetary assets:
January 1, 20x1 30,000
December 31, 20x1 200,000
The following are selected values of CPI-U for 20x1:
1-Jan 100 1-Apr 130 31-Dec 150
1-Feb 110 1-Aug 140 Average for the year 125
1-Mar 120 1-Oct 150
Requirement: Compute for the gain or loss on net monetary position (purchasing power gain or loss).
Solution:
Total monetary assets, Dec 31, 20x1, Historical cost: P200,000
Total monetary liabilities, Dec. 31, 20x1, Historical cost: (85,000)
Net monetary items, Dec. 31, 20x1, Historical cost (a) 115,00
Total monetary assets, Jan 1, 20x1 – Historical cost P30,000

Total monetary liabilities, Jan 1, 20x1 – Historical cost (15,000)
Net monetary items, Jan I, 20x1, Historical 15,000
General price index 160/10
Net monetary items, Jan. 1, 20x1, Restated 24,000
Increases in net monetary items during the year:
Sales (400,000 x 160/125) 512,000
Sales of investment (60,000 x 160/140) 68, 571
Issuance of share capital (80,000 x 160/160) 80,000 660,571
TEAM 14% 25
Decrease in net monetary items during the year:
Purchases (200,000 x 160/125) (256,000)
Acquisition cost of land (40,000 x 160/110) (58,182)
Acquisition cost of equipment (30,000 x 160/120) (40,000)
Dividends, declared (50,000 x 160/150) (53,333)
Operating expenses (120,000 x 160/125) (153,600) (561,115)
Net monetary items, Dec. 31, 20x, Restated (b) 123,456
Loss on net monetary position (a-b) P(8,456)

Illustration 4: Non-monetary items carried at other than cost
ABC Co. has previously been preparing financial statements restated in accordance with PAS 29. As of
December 31, 20x1, the following are among the assets of ABC Co.:
· Inventory from purchases made evenly throughout 20x1 with historical cost of P100,000
and net realizable value of P80,000 as of year-end.
· Held for trading securities acquired on January 1, 20x1 for P50,000. The fair value of the
securities as of year-end is P60,000.
· Land acquired on January 1, 20x0 for P1,000,000 was revalued to P1,200,000 on July 1,
20x1.
The following are the selected general price index numbers:
January 1, 20x0…………………………………..100
January1,20x1…………………………………….120
July 1, 20x1………………………………………….125
December 31, 20x1………………………………140
Requirement: Determine the amounts to be recognized for the assets listed above in the restated
financial statements.
Solution:
Assets Restated amounts
Inventory (at NRV) 80,000
Held for trading securities (at Fair values) 60,000
Land (1,200,00 x 140/125) 1,344,000
Total 1,484,000
Notes:
TEAM 14% 26
· Non-monetary items stated at net realizable value or fair value as at the end of report
period need not to be restated.
· Non-monetary items that are measured at revalued amounts where revaluation was made
at some earlier date shall be restated from the date of the revaluation. If revaluation
is made as at the end of reporting period, no restatement is necessary.

Illustration 5: Equity - First time adoption
During 20x1, the economy of ABC Co.’s functional currency became hyperinflationary. ABC Co. is
preparing its first financial statements prepared under PAS 29. The following information before
restatement was made available:
Cash 100 Accounts payable 300
Accounts Receivables 350 Share capital 500
Prepaid expenses 50 Revaluation surplus 100
Land 1,000 Retained earnings 600
Total assets 1,500 Total liability and equity 1,500
· The prepaid expenses were recognized evenly during the year.
· The land was acquired on January 1, 20x0 for P900 but was revalued to P1,000 on July
20x1. A revaluation surplus of P100 was recognized in equity.
· The share capital was issued on January 1, 20x0.
· The following are the selected general price index numbers:
January 1, 20x0…………………………100
January 1, 20x1…………………………120
July 1,20x1………………………………..125
December 31, 20x1…………………..140
Average for 20x1………………………130
Requirement: Compute for the restated shareholders’ equity.
Solution:
Restated
Cash 100
Accounts receivable 350
Prepaid expenses (P50 x 140/130) – round off 54
Land (P900 x 140/100) 1,260
TEAM 14% 27
Total assets 1,764
Accounts payable 300

Share capital (P500 x 140/100) 700
Revaluation surplus (eliminated) -
Retained earnings (balancing figure) (1,764 – 300 – 700) 764
Total equity 1,464
Total liability and equity 1,764
Observe that at the beginning of the first period of application of PAS 29, the components of owners’
equity, except retained earnings and any revaluation surplus, are restated by applying a general price
arose. Any revaluation surplus that arose in previous periods is eliminated. Restated retained earnings
are derived from all the other amounts in the restated statement of financial position, i.e., balancing
figure after restatement of other accounts.

500
Illustration 6: Approximation of average price index
ABC Co. reported sales of P1,000,000 in 20x1 which was made evenly throughout the year. The CPI-U
was 100 on January 1, 20x1 and 120 on December 31, 201.
Requirement: Compute for the sales adjusted to constant pesos.

Solution:
The average price index is computed as follows:

Ave. price index = CPI-U,beg.+CPI-U,end
2
Ave. price index = (120+100) + 2 = 110

Sales restated to constant peso (1,000,000 x 120/110) = 1,090,909

CURRENT COST ACCOUNTING
TEAM 14% 28
The current cost of an asset is the current replacement cost of the asset owed, adjusted for the
value of any operating advantages or disadvantages of the asset owned. However, it may not exceed
the recoverable amount, which is higher of the fair value less costs to sell (net realizable value) or the
value in use (net present value of the future cash flows).
The current replacement cost of an asset is the amount of cash or cash equivalents that an
entity would have to pay if the same or an equivalent asset was acquire currently. If used as
measurement basis, the current replacement cost is adjusted for the value of any operating
advantages of the asset owned.
Contributor: Melanie Timbal
Determining current cost
The current as the attribute of the assets to be measure is implemented either by indexation or
by direct pricing. The “indexation” approach should not be confused with general price index numbers
(CPI-U) that are used to restate nominal costs into constant pesos. Instead, it refers to specific indices
that are generated either internally or externally for particular classes of goods and services. Direct
pricing is made by reference to current invoice prices, vendors’ price lists or standard manufacturing
costs that reflect current cost.
Holding gains and losses
The application of current cost accounting involves the recognition of holding gains and holding
losses in the statement of profit or loss and other comprehensive income. If the current costs is higher
than the historical cost, the difference is a holding gain. On the other hand, if the current cost is lower
than the historical cost, the difference is a holding loss. Holding gains and holding losses may be
classified as either realized or unrealized. If the asset is used, sold or consumed during the period, the
holding gain or loss is classified as realized. On the other hand, if the asset is unused or unsold, the
holding gain or loss is classified as unrealized.
Financial Statements prepared under Current cost accounting
A current cost statement of financial position reflects non-monetary assets at their current cost.
A current cost statement of profit or loss and other comprehensive income reflects depreciation
expense and cost of goods sold at their current cost. Holding gains and losses are recognized on non-
monetary assets restated to current cost. The statement of cash flows prepared under current cost
TEAM 14% 29
accounting is the same as that of a historical cost accounting. No restatement is necessary because
items in the statement of cash flows are already stated in terms of current cost at transaction dates.
Summary of Restatement Procedures – Historical to Current Cost
1. Non- monetary assets are restated to current cost either through indexation or direct
pricing.
2. Monetary items are already stated at current cost and therefore not restated. Non-
monetary liabilities and equity are also not restated.
3. Sales are made at current selling prices throughout the period and therefore not restated.
4. Cost of sales is restated to the current cost of the inventory sold at the time of sale.
5. Depreciation is computed on the average current cost of the depreciable asset. The average
current cost is computed as “historical cost plus current cost divided by 2.”
6. Other operating expenses are measured at current cost when the underlying transactions
occurred and therefore not restated.
7. Realized holding gain or loss is computed as the difference between the current cost and
historical cost of assets sold or used during the year.
a. Inventory sold (Cost of goods sold – COGS):

COGS at current cost xx
Less: COGS at historical cost xx
Realized holding gain (loss) xx
b. Depreciable assets:
Depreciation based on average current cost xx
Less: Depreciation based on historical cost xx
c. Non-depreciable assets (i.e., land) sold:

Current cost at the time of sale xx
Less: Historical cost xx
8. Unrealized holding gain or loss is computed as the difference between the carrying amounts
based on current cost and historical cost of assets on hand or unsold at the end of the year.
Year-end carrying amount of asset at current cost xx

Less: Year-end carrying amount of asset at historical cost xx
Unrealized holding gain (loss) xx
9. Retained earnings is restated to current cost as follows:

TEAM 14% 30
Current cost retained earnings – January 1 xx
Add: Current cost profit or loss for the year xx
Total xx
Less: Dividends paid or declared xx
Current cost retained earnings – December 31 xx
Illustration 1: Restatement of Financial statements – Historical to Current cost
After its year of operations, ABC Co. is preparing its financial statements using current cost accounting.
Its historical cost financial statements are provided below:
ABC Company
Dec. 31 Jan. 1
ASSETS
Cash P 45, 000 P 20, 000
Accounts Receivable 40, 000 -
Allowance for Doubtful Accounts (5,000) -
Inventory (at cost) 50, 000 -
Land (at cost) 100, 000 100, 000
Building (at cost) 800, 000 800, 000
Accumulated Depreciation (80, 000) -
Total assets P 950, 000 P 920, 000

Accounts Payable P 20, 0000 P -
Loan Payable 120, 000 120, 000
Total liabilities P 140, 000 P 120, 000
Share Capital P 800, 000 P 800, 000
Retained Earnings 10, 000 -
Total equity P 810, 000 P 800, 000
Total liabilities and equity P 950, 000 P 920, 000
ABC Company
Statement of Profit or Loss and other Comprehensive Income
For the Year ended December 31, 20x2
TEAM 14% 31
Sales P 490, 000
Cost of Sales:
Inventory, January 1 P -
Purchases 340, 000
Total of goods available for sale 340,000
Inventory, December 31 (50,000) (290,000)
Gross Income 200,000
Depreciation Expense (80,000)
Distribution Costs (35, 000)
Bad Debts Expense (5, 000)
Finance Cost (10, 000)
Profit before tax 70, 000
Income tax expense (30, 000)
Profit for the year 40, 000
Other Comprehensive Income -
Total Comprehensive Income of the Year P 40, 000
ABC Company
Statement of Changes in Equity
For the Year ended December 31, 20x2
Capital Earnings Equity
Balance, Jan. 1, 20x2 P 800, 000 P - P 800, 000
Dividends (30, 000) (30, 000)
Total comprehensive income 40, 000 40, 000
Balance, Dec. 31, 20x2 Php 800, 000 P 10, 000 P 810, 000
· Information on Current Costs is as follows:
Cost of goods sold at average current cost 350, 000

Inventory, December 31, 20x2 75, 000
Land, December 31, 20x2 150, 000
Building, December 31, 20x2 1, 200, 000
· The building is being depreciated over 10 years using straight line method.
Requirement: Prepare current cost financial statements.
Solutions:
1. The realized holding gains (losses) are computed as follows:
TEAM 14% 32
a. Inventory sold (Cost of goods sold – COGS)
COGS at current cost 350, 000
COGS at historical cost (290, 000)
Realized holding gain 60, 000
b. Building (Depreciation)
Depreciation based on average current cost:
Current cost 1, 200, 000
Add: Historical cost 800, 000
Total 2, 000, 000
Divide by: 2
Average current cost 1, 000, 000
Divide by: Useful life 10
Depreciation based on average current cost 100, 000
Depreciation based on historical cost (80, 000)
Total realized holding gains (60, 000 + 20, 000) 80,000
2. The unrealized holding gains (losses) are computed as follows:
a. Inventory on hand (Ending Inventory)

Ending inventory at current cost 75, 000
Ending inventory at historical cost (50, 000)
Unrealized holding gain (loss) 25, 000
b. Building (Carrying amount at year-end)

Current cost – December 31, 20x2 1, 200, 000
Less: Accumulated depreciation at
current cost (1, 200, 000 + 10)* (120, 000)
Carrying amount at current cost 1, 080, 000
Carrying amount at historical cost (800, 000 – 80, 000) (720, 000)
*Notice that accumulated depreciation is based on ending current cost and not on average
current cost.
c. Land (Carrying amount at year-end)

Carrying amount at current cost 150, 000
Carrying amount at historical cost (100, 000)
Total unrealized holding gain (25, 000 + 360, 000 + 50, 000) 435, 000
TEAM 14% 33
The statement of profit or loss and other comprehensive income restated to current cost is shown
below:
ABC Company
Statement of Profit or Loss and other Comprehensive Income
For the Year Ended December 31, 20x2
Sales P 490, 000

Cost of Sales (at current cost – see given) (350, 000)
Gross Income 140, 000
Other Income:
Unrealized holding gain 435, 000
Total Income 655, 000
Operating expenses:
Depreciation expense (based on average current cost) (100, 000)
Distribution costs (35, 000)
Bad debts expense (5, 000)
Finance cost (10, 000)
Profit before tax 505, 000
Total Comprehensive Income for the Year P 475, 000
Retained earnings are restated to current cost as follows:
Current cost retained earnings – January 1 (1st year of operations) -

Add: Current cost profit or loss for the year Php 475, 000
Total 475, 0000
Less: Dividends (30, 000)
Current cost retained earnings – December 31 445, 000
ABC Company
ASSETS
Cash P 45, 000
TEAM 14% 34
Accounts Receivable 40, 000
Allowance for doubtful accounts (5, 000)

Inventory (at current cost) 75, 000
Land (at current cost) 150, 000
Building (at current cost) 1, 200, 000
Accumulated depreciation (at current cost) (120, 000)
Total Assets P 1, 385, 000

Accounts Payable P 20, 000
Loan Payable 120, 000
Total liabilities P 140, 000
Share capital 800, 000
Retained earnings (at current cost) 445, 000
Total equity 1, 245, 000
Total liabilities and equity P 1, 385, 000
The statement of changes in equity restated to current cost is shown below:
ABC Company
For the Year Ended December 31, 20x2
Capital Earnings Equity
Balance, Jan. 1, 20x2 P 800,000 P- P 800, 000
Dividends (30, 000) (30, 000)
Total Comprehensive Income 475, 000 475, 000
Balance, December 31, 20x2 P 800, 000 P 445, 000 P 1, 245, 000
CURRENT COST TO CONSTANT PESO
PAS 29, paragraph 7, states that “the financial statements of an entity whose functional currency is the
currency of a hyperinflanatory economy, whether they are based on a historical cost approach or a
current cost approach shall be stated in terms of the measuring unit current at the end of the
reporting period.”
In other words, the financial statements of an entity operating under hyperinflanatory economy which
was restated to current cost basis should still be restated using constant peso accounting. It is
TEAM 14% 35
important to distinguish between constant peso and current cost accounting. Constant peso accounting
is concerned only with changes in the unit of measure - from nominal cost to units of general
purchasing power. Current cost accounting discards historical cost as a reporting model.
If the financial statements of an entity operating under a hyperinflanatory economy are based on
current cost approach, such financial statements shall be restated using a hybrid approach called
“Current cost/Constant peso” accounting.
Contributor: Marian L. Ambrocio
Current Cost/Constant Peso Accounting

Items stated at current cost are not restated because they are already expressed in terms of the
measuring unit current at the end of the reporting period. Other items in the statement of financial
position are restated to constant pesos.
The current cost statement of profit or loss and other comprehensive income, before restatement,
generally reports costs current at the time at which the underlying transactions or events occurred.
Cost of sales and depreciation are recorded at current costs at the time of consumption; sales and
other expenses are recorded at their money amounts when they occurred. Therefore, all amounts
need to be restated into their measuring unit current at the end of the reporting period by applying
a general price index.
Gain or loss on net monetary position & holding gains and losses
The gain or loss on the net monetary position (general purchasing power gain or loss) and holding
gains and losses are recognized in profit or loss.
Summary of restatement procedures - Current Cost to Constant Peso
TEAM 14% 36
1. Identify monetary and non-monetary items. Only non-monetary items are already stated at the
measuring unit current as of end of reporting period are restated. Monetary items are not
restated.
2. Non-monetary items in the statement of financial position stated at current cost as of the end
of reporting period are not restated.
3. All items in the statement of profit or loss and other comprehensive income are restated to
constant pesos.
4. Restatement of items to constant pesos is similar to the restatement procedures for historical
cost to constant pesos, that is, items are multiplied by a CPI fraction, with the numerator as the
current price index and the denominator as the historical price index, except when
impracticable, the average price index may be used.
However, for depreciation expense based on average current cost, the denominator to be
used in the fraction is the average price index for the year.
5. Holding gains and losses shall be adjusted for inflation. The inflation adjusted holding gains
(losses) are computed as the difference between current costs restated to constant pesos and
historical costs restated to constant pesos.
Adjusted Realized Holding Gain (Loss):

Current cost adjusted to constant peso basis (CC/CP) xx
Less: Historical cost adjusted to constant peso basis (HC/CP) (xx)
Adjusted Unrealized Holding Gain (Loss):

Carrying amount at current cost basis (CC only) xx
Less: Carrying amount at historical cost adjusted to constant
peso basis (HC/CP) (xx)
Unrealized holding gain (loss) xx
6. The effect of inflation on net monetary items is calculated and recognized in profit or loss as
gain or loss on net monetary position (purchasing power gain or loss).
Illustration 1: Restatement of FS - Current cost to Constant peso

After its first year of operations, ABC Co.’s current cost financial statements are provided below:
ABC Company
ASSETS
Cash P 45,000
TEAM 14% 37
Allowance for doubtful accounts (5,000)
Inventory (at current cost) 75,000
Land (at current cost) 150,000
Building (at current cost) 1,200,000
Accumulated depreciation (at current cost) (120,000)
Total Assets P 1,385,000

Accounts payable P 20,000
Loan payable 120,000
Total liabilities 140,000
Share capital 800,000

Retained earnings (at current cost) 445,000
Total equity 1,245, 000
Total liabilities and equity P 1,385,000
ABC Company
Sales P 490,000
Cost of sales (at current cost) (350,000)
Gross income 140,000
Other income:
Realized holding gain 80,000
Unrealized holding gain 435,000
Total income 655,000
Operating expenses:
Depreciation expense (based on average current cost) (100,000)
Distribution costs (35,000)
Finance cost (10,000)
Profit before tax 505,000
Income tax expense (30,000)
Profit for the year 475,000
Total comprehensive income for the year P 475,000
ABC Company
TEAM 14% 38
Share capital Retained Earnings Total Equity

Balance, Jan 1, 20x2 P 800,000 P - P 800,000
Dividends (30,000) (30,000)
Total comprehensive income 475,000 475,000
Balance, Dec. 31, 20x2 P 800,000 P 445,000 P 1,245,000
● The land and building were acquired on January 1, 20x2 for P100,000 and P800,000,
respectively.
● The building is being depreciated over 10 years using straight line method. The carrying
amount of the building as of December 31, 20x2 based on historical cost is P720,000.
● The share capital was issued on January 1, 20x2.
● The inventory on December 31, 20x2 has a historical cost of P50,000. There was no inventory
on January 1, 20x2.
● Sales, purchases, and expenses (except interest expense) were incurred evenly during the year.
● Purchases during the year amounted to P340,000 (at historical cost).
● Interest expense was recognized and paid on December 31, 20x2.
● Dividends of P300,000 were declared and paid on December 31, 20x2.
● Selected values of general price indices (CPI) are shown below:
January 1, 20x2……………………………………………………………………………………….100
Average for 20x2……………………………………………………………………………………..120
December 31, 20x2………………………………………………………………………………….140
● The net monetary liabilities as of january 1, 20x2 at historical cost is P100,000.
Requirement: Prepare current cost/constant peso financial statements.
Solutions:
The holding gains (losses) are adjusted for inflation as follows:
1. The adjusted realized holding gains (losses) are computed as follows:
a. Inventory sold (Cost of goods sold - COGS)
COGS at current cost/constant peso basis:

(350,000 x 140/120) 408,333
COGS at historical cost/constant peso basis:
Beginning inventory -
Purchases (340,000 x 140/120) 396,667
Ending inventory (50,000 x 140/120) (58,333) (338,333)
b. Building used (Depreciation):

Depreciation at current cost/constant peso basis:
(100,000 x 140/120*) 116,667
Depreciation at historical cost/constant peso basis:
(800,000/10 yrs. = 80,000 x 140/100) (112,000)
TEAM 14% 39
*Notice that the denominator in the fraction applies to the depreciation based on average current cost
is the average CPI-U for the year.
Total adjusted realized holding gains (70,000 + 4,667) 74,667
The amounts stated at current costs are nevertheless restated to constant pesos because they are
stated at the measuring unit current at transaction dates rather than at the reporting date.
2. The adjusted unrealized holding gains (losses) are computed as follows:

a. Inventory on hand (Ending inventory):
Ending inventory at current cost basis: 75,000
Ending inventory at historical cost/constant peso basis:
(50,000 x 140/120) (58,333)
b. Building (Carrying amount at year-end):
Carrying amount at current cost basis: (1,200,000 - 120,000) 1,080,000

Carrying amount at historical cost/constant peso basis:
(720,000 x 140/100) (1,008,000)
c. Land (Carrying amount at year-end):

Carrying amount at current cost basis: 150,000
Carrying amount at historical cost/constant peso basis:
(100,000 x 140/100) (140,000)
Total adjusted unrealized holding gains (16,667 + 72,000 + 10,000) 98,667
The carrying amounts stated at year-end current costs are not restated anymore to constant pesos
because they are already stated at the measuring unit current at the reporting date.
The current cost statement of profit or loss and other comprehensive income is stated to current
cost/constant peso basis as follows:
ABC Company
Current cost Fraction Current cost/
TEAM 14% 40
Constant peso
Sales P490,000 140/120 P571,667
Cost of sales (350,000) 140/120 (408,333)
Gross income 140,000 163,334
Other income:
Realized holding gain 80,000 74,667
Unrealized holding gain 435,000 98,667
Total income 655,000 336,668
Operating expenses:
Depreciation expense (100,000) 140/120 (116,667)
Distribution costs (35,000) 140/120 (40,833)
Bad debts expense (5,000) (5,000)
Finance cost (10,000) 140/120 (10,000)
Gain on net monetary position** 25,833
Profit before tax 505,000 190,001
Income tax expense (30,000) 140/120 (35,000)
Profit for the year 475,000 155,001
Other comprehensive income - -
Total comprehensive income
for the yr. P475,000 P155,001
*Notice that the denominator in the fraction applied to depreciation expense based on average current
cost is the average CPI-U for the year and not the historical price index.
**The gain (loss) on net monetary position is computed as follows:
Net monetary items - end: Historical
(45,000 + 40,000 - 5,000 - 20,000 - 120,000) (60,000)
Less: Net monetary items - end: Restated
Net monetary liabilities, beg. - restated (100,000 x 140/100) (140,000)
Sales (490,000) x 140/120) 571,667
Purchases (340,000 x 140/120) (396,667)
Distribution costs (35,000 x 140/120) (40,833)
Finance cost (10,000 x 140/140) (10,000)
Income tax expense (30,000 x 140/120) (35,000)
Dividends (30,000 x 140/140) (30,000)
Total (85,833)
Gain on net monetary position 25,833
ABC Company
Current cost Fraction Current cost/
Constant peso
ASSETS
TEAM 14% 41
Cash P 45,000 P 45,000
Accounts receivable 40,000 40,000
Allowance for doubtful accounts (5,000) (5,000)
Inventory (at current cost) 75,000 75,000
Land (at current cost) 150,000 150,000
Building (at current cost) 1,200,000 1,200,000
Accum. Depn. (at current cost) (120,000) (120,000)
Accounts payable P 20,000 P 20,000
Loan payable 120,000 120,000
Share capital 800,000 140/100 1,120,000
Retained earnings 445,000 (squeeze) 125,000
Total equity 1,245,000 1,245,000
Total liabilities and equity P 1,385,000 P 1,385,000
ABC Company
Share capital Retained Total equity
Earnings
Balance, Jan. 1, 20x2 P1,120,000 P - P1,120,000
Dividends (30,000) (30,000)
Total comprehensive income 155,001 155,001
Balance, Dec 31, 20x2 P1,120,000 P125,001* P1,245,001*
*The difference of one (1) peso is due to rounding off.
Illustration 2: Current cost to Constant peso profit or loss

ABC Company acquired inventory on January 1, 20x2 for P20,000. On August 1, 20x2, when the
current cost of the inventory is P32,000, three-fourths of the inventory was sold for P60,000. At year-
end, the current cost of the inventory on hand was P8,000.
ABC’s land acquired on January 1, 20x2 for P30,000 has a current cost of P40,000 on December 31,
20x2.
Operating expenses incurred evenly during the year amounted to P43,700.
TEAM 14% 42
On January 1, 20x2, ABC had monetary assets of P200,000 and monetary liabilities of P100,000.
During the year, ABC’s monetary inflows and outflows were relatively constant and equal so that it
ended the year with net monetary assets of P80,000.
Selected values of general price indices (CPI) are shown below:

January 1, 20x2…………………………………………………………………………………………………..200
August 1, 20x2…………………………………………………………………………………………………...240
December 1, 20x2……………………………………………………………………………………………….260
Requirements: Compute for ABC Co’s profit (loss) under each of the following:
a. Historical (Nominal) cost basis
b. Constant peso basis
c. Current cost basis
d. Current cost/constant peso basis
Solutions:
Requirements (a) and (b): Historical and Constant Pesos

Historical Fraction Constant Pesos
Sales 60,000 260/240 65,000
Beginning inventory 20,000 260/240 26,000
Purchases -
Ending inventory (20K x ¼) (5,000) 260/200 (6,500)
Cost of goods sold (20L x ¼) (15,000) (19,500)
Gross income 45,000 45,000
Realized holding gain - -
Unrealized holding gain - -
Operating expenses (43,700) 260/230* (49,400)
Purchasing power loss** __-___ (24,000)
Profit (Loss) for the year 1,300 (27,900)
*[(260 + 200)/2] = 230 average price index
**The gain (loss) on net monetary position is computed as follows:
Net monetary assets, Dec. 31 (Historical) - given 80,000

Net monetary assets, Dec. 31 (Restated) (80,000 x 260/200) (104,000)
Purchasing power loss (24,000)
Since the problem stated that “ABC’s monetary inflows and outflows were relatively constant and
equal, the “net monetary items, beg.” is not restated anymore for changes in monetary items during
the year. Instead, the “net monetary items, restated” is computed by directly applying the price index
fraction.
Requirement (c): Current cost

Historical Current cost
Sales 60,000 60,000
TEAM 14% 43
Beginning inventory 20,000
Purchases -
Ending inventory (5,000)
Cost of goods sold (15,000) (32,000 x ¾) (24,000)
Gross income 45,000 36,000
Realized holding gain - 9,000
Unrealized holding gain - 13,000
Operating expenses (43,700) (43,700)
Purchasing power loss** __-___ __-___
Profit (Loss) for the year 1,300 14,300
The realized holding gain (loss) is computed as follows:
Cost of goods sold (COGS) at current cost (32,000 x ¾) 24,000

Cost of goods sold (COGS) at current cost (20,000 x ¾) (15,000)
The unrealized holding gains (losses) are computed as follows:
Ending inventory, at current cost (given) 8,000

Ending inventory, at current cost (20,000 x ¼) (5,000)
Land at current cost 40,000

Land at historical cost (30,000)
Total unrealized holding gain (3,000 + 10,000) 13,000
Requirement (d): Current cost/Constant pesos

Historical Constant Current Current cost/
cost pesos cost Constant pesos
(60,000 x
Sales 60,000 65,000 60,000 260/240) 65,000
Beginning inventory 20,000 26,000
Purchases - -
Ending inventory (5,000) (6,500)
(24,000 x
Cost of goods sold (15,000) (19,500) (24,000) 26/240) (26,000)
Gross income 45,000 45,500 36,000 39,000
Realized holding gain - 9,000 6,500
Unrealized holding gain - 13,000 2,500
(43,700 x
Operating expenses (43,700) (49,400) (43,700) 260/230) (49,400)
Purchasing power loss - (24,000) - (24,000)
Profit (loss) for the yr. 1,300 (27,900) 14,300 25,400
The inflation adjusted realized holding gains (losses) is computed as follows:
TEAM 14% 44
COGS at current cost/constant peso basis (CC/CP)
(32,000 x ¾ x 260/240) 26,000
COGS at historical cost/constant peso basis (HC/CP):
Beginning inventory (20,000 X 260/200) 26,000
Purchases -
Ending inventory (20,000 x ¼ x 260/200) (6,500)
COGS at historical cost/constant peso basis (HC/CP): (19,500)
Adjusted realized holding gain 6,500
The inflation adjusted unrealized holding gains (losses) are computed as follows:
End. inventory, at current cost (CC only) 8,000

End. inventory, at historical cost/constant pesos (HC/CP)
(20,000 x ¼ x 260/200) (6,500)
Land at current cost (CC only) 40,000

Land at historical cost/constant pesos (HC/CP)
(30,000 x 260/200)
Total adjusted unrealized holding gain (1,500 + 1,000) 2,500
Illustration 3: Depreciation Expense

ABC Co. acquired equipment on January 1, 20x1 for P60,000. The equipment will be depreciated over 5
years under the straight line method. A specific price index applicable to the equipment was 150 on
January 1, 20x1 and 180 on December 31, 20x1. The CPI-U was 100 on January 1, 20x1 and 140 on
December 31, 20x1. The average CPI-U on 20x1 was 120.
Requirement: Compute for the depreciation expense under each of the following:
a. Historical cost (nominal cost) basis
d. Current cost/ constant peso basis
Solutions:
a. Historical cost (nominal cost) basis:

TEAM 14% 45
Depreciation expense (60,000/5) = 12,000
b. Constant peso basis:

Depreciation expense (12,000 x 140/100) = 16,800
c. Current cost basis:

Historical cost 60,000
Add: Current cost - Dec. 31, 20x1 (60,000 x 180/150) 72,000
Total 132,000
Divide by: _____2
Average current cost 66,000
Divide by: Useful life _____5
Depreciation based on average current cost 13,200
Illustration 4: Cost of goods sold and Ending inventory
ABC Co. has 100,000 units in inventory on January 1, 20x2 with per unit cost of P5. These units were
purchased on this date. Total purchases during the period were 100,000 units at a unit cost of P6.
Inventory on hand on December 31, 20x2 was 20,000 units. The current cost per unit of inventory was
P8 on January 1, 20x2 and P10 on December 31, 20x2. The CPI-U was 100 on January 1, 20x2 and
120 on December 31, 20x2. ABC uses the average cost flow formula in accordance with PAS 2
Inventories.
Requirement: Compute for the (a) cost of goods sold and (b) ending inventory under each of the
following:
a. Historical cost (nominal cost) basis
d. Current cost/ constant peso basis
Solutions:
Requirement (a): Cost of goods sold and Ending Inventory under Historical cost basis
The average unit cost is computed as follows:
Units Unit cost Total cost
Beginning inventory 10,000 5.00 50,000
Purchases 100,000 6.00 600,000
TEAM 14% 46
Total goods available for sale 110,000 650,000
Ave. unit cost = TGAS, in pesos/TGAS in units

Ave. unit cost - (650,000/110,000) = 5.91
The cost of goods sold under historical cost is computed as follows:

Historical cost
Beginning inventory 50,000
Purchases 600,000
Ending inventory (20,000 x 5.91) (118,000)
Cost of goods sold 531, 800
Requirement (b): Cost of goods sold and Ending inventory under Constant peso basis
Historical cost Fraction Constant peso

Beginning inventory 50,000 120/100 60,000
Purchases 600,000 120/100* 654,545
Ending inventory (20,000 x 5.91) (118,000) 120/100* (128, 945)
Cost of goods sold 531, 800 585, 600
Requirement (c): Cost of goods sold and Ending inventory under Current cost basis
Cost of goods sold - current cost:

Total goods available for sale in units (see table above) 110,000
Ending inventory in units (20,000)
Number of units sold 90,000
Multiply by: Average current cost (8+10)/2 ____9
Cost of goods sold - current cost 810,000
Requirement (d): Cost of goods sold and Ending inventory under Current cost/ Constant
pesos basis
a. Cost of goods sold - current cost/constant peso:

(810,000 x 120/110) = 883, 636
b. Ending inventory - current cost/constant peso:

(20,000 x P10) = 200,000
Since the ending inventory is measured at the current cost as of year-end. It is not restated anymore
to constant peso basis.
TEAM 14% 47
TAXES
The restatement of financial statements in accordance with PAS 29 may give rise to difference between
the carrying amount of individual assets and liabilities in the statement of financial position and their
tax bases. These differences are accounted for in accordance with PAS 12 Income Taxes.
Contributor: Fredrey F. Monterde
The levy of taxes is a well-established method for governments to raise the funds necessary to carry
out its various programs and initiatives. There are, of course, always vigorous debates about the
appropriate level of taxation and the uses to which the taxation proceeds are put, but it is an
inescapable truth that governments require some form of taxation revenue to function. One form of
taxation that is commonly used is an income tax. Most of us are familiar with the application of
personal income tax, as this type of tax is levied on employment and other forms of personal income.
Governments also raise funds through assessing income taxes on corporate profits. This practice raises
some interesting and complex accounting questions, and it is these questions that will be addressed in
this chapter. We will not, however, be examining the processes involved in preparing corporate tax
returns or the development of sophisticated tax structures like the one described in the opening
vignette, as our focus is on the financial accounting and reporting issues. As well, we will not be
looking at other forms of taxation, such as value-added taxes or payroll taxes, as these topics have
been discussed in previous chapters.
Source: Intermediate Financial Accounting, 2018, Arnold G & Kyle S, pages 136-137
DEFERRED TAXES
Although deferred tax assets and deferred tax liabilities are monetary items, they still need to be
restated when applying PAS 29 because they are affected by the movements in non-monetary items.
However, deferred taxes are not restated by indexation. Instead, the restated deferred tax assets or
deferred tax liability is computed as the difference between the restated carrying amount of the
related non-monetary item and its tax base. Since there is generally no tax relief for inflation, the tax
base of the related non-monetary need not be adjusted for inflation.
TEAM 14% 48
Illustration 1: Restatement of deferred tax liability
As of December 31, 20x1, ABC Co. has a deferred tax liability of P6,000 resulting from an equipment
with carrying amount of P100,000 (before restatement) and a tax base P80,000. ABC’s income tax rate
is 30%. The CPI-U was 100 on January 1, 20x1 when the equipment was acquired and 140 on
December 31, 20x1.
Requirement: Compute for the restated deferred tax liability.

Solution:
The restated deferred tax liability is computed as follows:

Restated carrying amount (P100,000 x 140/100) 140,000
Tax base of asset (80,000)
Taxable temporary difference 60,000
Multiply by: 30%
Restated deferred tax liability 18,000
The difference between the restated ending balance of deferred tax liability and restated
beginning balance of deferred liability (computed in the same manner as illustrated above but using
the carrying amount and tax base of the equipment as of the beginning of the period) is recognized as
deferred tax expense (benefit) for the period.
CONSOLIDATED FS
A parent that reports in the currency of hyperinflationary economy may have subsidiaries that also
report in the currencies of hyperinflationary economies. The financial statements of any such subsidiary
need to be restated by applying a general price index of the country in whose currency it
reports before they are included in the consolidated financial statements issued by its parent.
Where such a subsidiary is a foreign subsidiary, its restated financial statements are translated at
closing rates. The financial statements of subsidiaries that do not report in hyperinflationary economies
are dealt with in accordance with PAS 21 The Effects of Changes in Foreign Exchanges Rates.
TEAM 14% 49
Different ends of reporting periods
If financial statements with different ends of the reporting periods are consolidated, all items,
whether non-monetary or monetary, need to be restated into the measuring unit current at the date
of the consolidated financial statements.
Economies ceasing to be hyperinflationary
When an economy ceases to be hyperinflationary and an entity discontinues the preparation and
presentation of financial statements prepared in accordance with this Standard, it shall treat the
amounts expressed in the measuring unit current at the end of the previous reporting period as the
basis for the carrying amounts in its subsequent financial statements.
REVIEW OF RELATED LITERATURE
How 9 Countries Saw Inflation Evolve Into Hyperinflation
Hyperinflationary episodes have appeared several times over the past century – 55, to be exact – as the world's nations
have experimented with fiat currencies backed by the full faith and credit of the governments that issue them.
At times, that full faith and credit has been misplaced – and holders of unstable currencies have been caught empty-
handed in countries all over the world.
Often, this is can be a recurring theme among developing nations like those in Latin America during the debt crisis that
struck the region in the 1980s.
Even some of the largest economies in the world today, though – like China, Germany, and France – have suffered
devastating hyperinflationary episodes.
A major historical precursor of hyperinflation is war that destroys the capital stock of an economy and dramatically
reduces output – but the misplaced monetary and fiscal policies that ensue are almost always part of the story.
TEAM 14% 50
Economists Steve Hanke and Nicholas Krus compiled data on all 56 recorded hyperinflations in a 2012 study. We
summarize 9 of the worst episodes here.
Hungary: August 1945 - July 1946
Source: https://www.flickr.com/photos/zoliblog/2553167725/ = retrieved December 2, 2019
Daily inflation rate: 207 percent

Prices doubled every: 15 hours
Story: Hungary was economically devastated by WWII. Owing to its unfortunate status as a warzone, estimates
indicate 40 percent of Hungary's capital stock was destroyed in the conflict. Before this, it had engaged in a wild,
debt-fueled ramp up in production to support the German war effort, but Germany never paid for the goods.
When Hungary signed a peace treaty with the Allies in 1945, it was ordered to pay the Soviets massive reparations,
which accounted for 25-50 percent of Hungary's budget during its hyperinflationary episode. Meanwhile, the country's
monetary policy was essentially co-opted by the Allied Control Commission.
Hungarian central bankers warned that printing money to pay the bills would not end well, but "the Soviets, who
dominated the Commission, turned a deaf ear to these warnings, which led some to conclude that the hyperinflation was
designed to achieve a political objective–the destruction of the middle class" (Bomberger and Makinen 1983).
Zimbabwe: March 2007 - November 2008
Source: https://www.flickr.com/photos/mistermoss/2899197879/ = retrieved December 2, 2019
TEAM 14% 51
Story: Zimbabwe's hyperinflation was preceded by a long, grinding decline in economic output that followed Robert
Mugabe's land reforms of 2000-2001, through which land was expropriated largely from white farmers and
redistributed to the majority black populace. This led to a 50 percent collapse in output over the next nine years.
Socialist reforms and a costly involvement in Congo's civil war led to outsized government budget deficits. At the same
time, the Zimbabwean population was declining as people fled the country. These two opposing factors of increased
government spending and a decreasing tax base caused the government to resort to monetization of its fiscal deficit.
Yugoslavia/Republika Srpska: April 1992 - January 1994
Source: https://upload.wikimedia.org/wikipedia/commons/0/06/Dinar_100_000a.JPG = retrieved December 2, 2019

Story: The fall of the Soviet Union led to a decreased international role for Yugoslavia –formerly a key geopolitical
player connecting East and West – and its ruling Communist party eventually came under the same pressure as the
Soviets did. This led to a breakup of Yugoslavia into several countries along ethnic lines and subsequent wars over the
following years as the newly-formed political entities sorted out their independence.
In the process, trade among regions of the former Yugoslavia collapsed, and industrial output followed. At the same
time, an international embargo was placed on Yugoslavian exports, which further crushed output. Petrovic, Bogetic, and
Vujosevic (1998) explain that the newly-formed Federal Republic of Yugoslavia, in contrast with other states that
broke away like Serbia and Croatia, retained much of the bloated bureaucracy that existed before the split,
contributing to the federal deficit. In an attempt to monetize this and other deficits, the central bank lost control of
money creation and caused hyperinflation.
Weimar Germany: August 1922 - December 1923
TEAM 14% 52
Source: https://www.flickr.com/photos/56380734@N05/5938405341/ = retrieved December 2, 2019

Prices doubled every: 3 days, 17 hours
Story: The hyperinflation experienced in Weimar Germany in the early 1920s followed its defeat in World War One a
few years earlier. As a result of the war, Germany was required to pay large reparations to the victors to make up for
the costs incurred by the winning side.
However, Germany was not allowed to pay the reparations with its currency at the time, the Papiermark, which had
already weakened significantly during the war on account of the fact that Germany financed its war effort entirely
through borrowed funds.
In order to pay the reparations in a currency other than the Papiermark, Weimar Germany was forced to sell large
amounts of the mark in exchange for a foreign currencies that were eligible as payments. When the payments came due
in the summer of 1921, a policy of selling the mark to buy foreign currencies at any price led to runaway hyperinflation
as the mark was severely devalued.
Greece: May 1941 - December 1945
Source: https://www.flickr.com/photos/telemax/3543707844/ = retrieved December 2, 2019

Story: Greece's fiscal budget balance swung from a 271-million drachma surplus in 1939 to a 790-million drachma
deficit in 1940 due to the onset of World War Two (foreign trade fell dramatically). This set the stage for an already-
deteriorating fiscal position by the time Greece was invaded by the Axis powers at the end of 1940.
TEAM 14% 53
The additional costs on Greece imposed by the "puppet government" of Axis powers that controlled the country during
its occupation included supporting 400,000 Axis soldiers stationed there and a big indemnity owed to the occupiers.
Furthermore, national income in Greece was slashed from 67.4 billion drachma in 1938 to 20 billion drachma by 1942.
As tax revenues plummeted, Greece resorted to monetization at the central bank to pay the aforementioned
expenditures and finance the rest of its deficit.
China: October 1947 - May 1949

Source: https://upload.wikimedia.org/wikipedia/commons/9/91/Renminbi1ban_200yuan.jpg = retrieved December 2,
2019

Story: After World War Two, China was divided by civil war. Nationalists and Communists battled for control of the
country and introduced competing currencies in the process, leaving China's monetary system fragmented among ten
major mediums of exchange in 1948.
Currency took center stage at times during the conflict – Campbell and Tullock (1954) explained that the three
governments (including the Japanese occupiers) engaged in "monetary warfare" by attempting to undermine opposing
currencies in various ways.
To fund the conflict, the Nationalists resorted to running huge budget deficits, which they eventually looked to cover
by printing money, leading to runaway hyperinflation. (this was preceded by abandonment of the silver standard in China
in 1935). They even got the Taiwanese central bank involved with the monetization scheme, which caused hyperinflation
in Taiwan as well.
Peru: July 1990 - August 1990
TEAM 14% 54
Source: https://en.wikipedia.org/wiki/File:Peru_100_Awers.JPG = retrieved December 2, 2019

Story: Peru had a long battle with inflation in the latter half of the 20th century. During the first half of the 1980s,
Fernando Belaunde Terry was president, and Peru was faced with austerity policies imposed by IMF lenders following
the Latin American financial crisis that began early in the decade.
Economist Thayer Watkins says the Belaunde Terry administration gave the appearance that it was complying with the
reforms recommended by the IMF, when in reality, it was not. The economy was suffering stagflation at the time, and
it was blamed on IMF austerity policies by the electorate, even though those policies weren't actually being followed.
This led to the election of Alan Garcia in 1985 as president. Garcia enacted populist economic reforms that only served
to weaken the economy and shut Peru out of international credit markets. Faced with a lack of access to credit and
deteriorating economic conditions, sustained high inflation became hyperinflation in Peru.
France: May 1795 - November 1796
Source: https://en.wikipedia.org/wiki/File:France-500Livres-1790-uni.jpg = retrieved December 2, 2019
TEAM 14% 55
Story: The French Revolution (1789-1799) came after a period in which France had run up substantial debts from
fighting wars, including the war for U.S. independence from Great Britain.
One of the major economic policies of the French Revolution was the nationalization of land formerly owned by the
Catholic Church. The Church was seen as an easy target for asset expropriation because they owned a lot of land yet
had relatively little political influence in the new regime.
The government then issued assignats to the public – notes that essentially amounted to a land-backed currency – which
were supposed to be redeemable for the land by note-holders at a future date. However, the government ended up
issuing way too many notes in an attempt to close the deficit, devaluing the assignats and leading to runaway
hyperinflation.
Nicaragua: June 1986 - March 1991
Source: https://en.wikipedia.org/wiki/File:Nicar-currency-inflated.jpg = retrieved December 2, 2019

Story: In 1979, Nicaragua underwent a revolution that found the communist Sandinistas in power. This came against
the backdrop of a global recession and a financial crisis across much of Latin America sparked by record high debt
levels and the inability by nations to service those debts.
The Nicaraguan economy was ravaged by the revolution – GDP contracted by 34 percent cumulatively during 1978-1979.
When the Sandinistas took power, they nationalized large parts of the economy, further contributing to the economic
turmoil and hindering a robust recovery.
In the face of this, the Nicaraguan government turned to expansionary fiscal policy and foreign borrowing to stimulate
domestic demand. This spending accelerated in the latter half of the decade to finance a war with the opposing
Contras. While strong capital controls and a fixed exchange rate kept inflation at bay initially, 1985 economic reform
moving away from such policies unleashed the suppressed inflation in the Nicaraguan economy.
Source:https://www.businessinsider.com/worst-hyperinflation-episodes-in-
history-2013-9#peru-july-1990-august-1990-7
TEAM 14% 56
How Hyperinflation Destroys Much More Than Just Currencies
Source: https://www.wired.com/story/hyperinflation-destroys-currencies-cultures/ = retrieved December 4, 2019
In November 1923, there were 4,210,500,000,000 German marks to the dollar. 4.2 trillion. In lay economics, 1 : 4.2
trillion equals worthless.
Such a ruinous currency devaluation exacts steep psychic tolls. Like a startup expensively acquiring users on a thin
promise of future monetization, Germany had one operating principle during World War I: hubris. Pumping fiat money
into circulation, the government insisted that the resources it was about to win would wipe out its debts. When the
Central Powers surrendered on November 11, 1918, not only was the nation’s credit maxed, it had reparations to pay.
Reeling, Germans found their faith in unsecured money betrayed and sought to ground themselves in hard assets. Many
blamed their pain on a cosmopolitan intelligentsia, coded Jewish, in control of the banks and universities, and even on
fundamental symbolic orders—mathematics, literature, art, and science.
Weimar Germany’s hyperinflation was, of course, part of the prologue to fascism—and it’s become habitual to blame
similar economic crises in any country where authoritarians arise. Take Venezuela, a democracy that was hit by inflation
under Hugo Chávez. After he died, a majority of Venezuelans, in deep economic distress, voted in the monstrously
corrupt Nicolás Maduro, who has ruled by decree at times. (Hyperinflation is soon expected to hit a stomach-churning
rate of 1 million percent.)
TEAM 14% 57
Hyperinflation, then, may very well have led to tyranny in Germany and Venezuela. But to call it strictly an economic
problem is to overlook its wrenching cultural implications. What if hyperinflation is not just a fever that destroys
currencies but a general collapse in a system of values?
Seen this way, hyperinflation might be likened to another kind of trauma, one that befell America in the last decade:
digitization. As in hyperinflation, where prices surge when money is printed willy-nilly, digitization complicates the
relationship between tokens of value and material value. It has also introduced increasingly bewildering levels of
abstraction to ordinary existence: a flesh-and-blood friend becomes a “friend,” a wink becomes an emoji, a $20 bill
becomes a Venmo swipe.
Money and language are both symbolic systems for assigning and measuring value. As much as Germans suffered from
physical deprivations in the Weimar era, the disorientation of the time centered on something bigger—an ice-cold
awareness that signifiers of value had gone off the rails. A mark wasn’t worth anything, which meant neither were the
government’s promises of victory at war. Or the lies of finance, religion, education.
The historic twinning of money and language survives in the powerful notion of “coining.” A metal blank becomes a coin
of the realm when symbols are inscribed on it, and with symbols it gets value and can be swapped for stuff bodies need,
like potatoes. Likewise, an idea gets meaning when it’s “coined,” or turned into a meme.
In the 19th and 20th centuries, money evolved from gold coins to paper signifying gold to paper signifying nothing.
Similarly, in the 21st century, digitization turned central totems of American life immaterial and often without
referents. How does a 20th-century mind process the relationship between esoteric, unbacked bitcoin and the dry
goods people have always traded for? What about the relationship between sexting amid smartphones and sex between
mammals? Both seem about the same as the relationship between the near-worthless bolivar and a bar of gold.
The US discovered a form of Weimar panic over meaning with Web 2.0. Beginning in 2004, terabytes upon terabytes of
information have poured into circulation. Much or most of this information is unsound, like wooden nickels.
Americans now spend 10½ hours every day consuming media. Billions of people have passed through the looking glass,
from the largely material real world to the entirely abstract internet. In 2008, according to Daniel Jones, editor of
The New York Times’ Modern Love column, daters complained that romances were just physical hookups. By 2011, they
were bemoaning sexless emotional romances that were “all online.”
No wonder there is evidence of social disintegration. Making matters worse, many of the minds that are overwhelmed
by digitization can’t drive defensively on the internet, and are highly vulnerable to disinformation. When abstraction is
making you feel crazy, the concrete rhetoric of blood and soil, say, can seem grounding.
Donald Trump has of course advocated for the primacy of race and land since 2016, when he announced his bid for the
presidency by observing that Mexicans are rapists. He had long persecuted Barack Obama for essentially impure blood.
As he campaigned, he spoke of locks, jails, walls, violence, and America’s lost greatness—an imagined predigital time of
racial purity when the degenerate stuff was behind a wall. When Trump reps isolationists, he’s expressing the maxims
of gold-standard paranoiacs: Protect what we have, and don’t get mixed up in trade or politics with anyone but your
cronies.
In spite of his grinding Twitter habit, Trump is at sea with tech. He doesn’t use email. He doesn’t text. He rarely opens
a computer. When told of Russian election interference, in December 2016, he said “computers have complicated lives
very greatly.”
TEAM 14% 58
How did we get here, to a popular discourse where common sense is inverted in an effort to make meaning of a bruising
new symbolic order? The usual reasons are right: deep American racism, gerrymandering, election interference. But it’s
been a puzzle to some historians that we had no precedent period akin to Weimar. Maybe—on the internet—we did.
Source: https://www.wired.com/story/hyperinflation-destroys-currencies-cultures/ = retrieved

December 4, 2019
Contributor: Chriezle Sanchez
TEAM 14% PROFILE
Ambrocio, Marian L.
Birthday: September 8, 2000
Address: Blk 1, Lot 16, Portville Davao, Landmark 3,
Sasa, Davao City
Contact Number: 09950717246
Education:
Elementary: Jose Maria College

High school: Jose Maria College
College: Jose Maria College
Special skills: Writing, photo and video editing

Honors, Awards and Achievements:
Elementary: Salutatorian
High school: With honors

Hobbies: Reading, watching YouTube videos
Motto in life: Keep moving forward.
TEAM 14% 59
Cadunggan, Ojims Christjohn
Birthday: May 17, 2000
Address: Blk 23, Lot 5, Fuji street, Bambu Estate
subdivision, Barangay Mintal, Davao City
Education:
Elementary: 1 Lt. Jesus Yermo Elementary School

High school: Southern Christian College
Special skills:
Elementary: Valedictorian
High school:
Hobbies: Playing computer games, sleeping, eating
Motto in life: One word is enough for a wise man, that's why you need to repeat your word to me
again.
Concon, Almira N.
Birthday: October 5,1997
Address: Quartz st. Crystal meadows subd. Sasa Davao
City
Contact number: 09997666966
Education:
Elementary: Sasa Elementary School
TEAM 14% 60
High School: Sta. Ana National High School
College: DMMA College of Southern Philippines,
Jose Maria College
Special skills:
Hobbies: eat
Motto in life: I will survive hey! hey!!
Monterde, Fredrey F.
Birthday: December 9, 2000
Address: Freedom Village, San Antonio, Agdao, Davao
City
Education:
Elementary: Magallanes Elementary School

High school: Sta. Ana National High School
Special skills:
Elementary: First Honorable Mention
High school: With Honors

Hobbies: Music, travel, cooking, socializing
Motto in life: No one can make you successful; the will to success comes from within.
TEAM 14% 61
Sanchez, Chriezle Mae
Birthday: February 24, 1996
Address: Indangan Shelter, San Miguel, Davao City
Education:
Elementary: San Francisco Elementary School

High school: Bayugan National Comprehensive
High School
Special skills: Clarinet player
Elementary: Fifth Honorable Mention
High school: Second Honorable Mention
Hobbies: Reading books, playing badminton
Motto in life: Real growth is when you start checking and correcting yourself.
Timbal, Melanie Janine M.

Birthday: January 22, 2001
Address: Prk. 22-A, Sitio Malamboon, Ecoland, Davao
City
Education:
Elementary: Kabacan Elementary School
TEAM 14% 62
High school: S ta. Ana National High School
Special skills:
Elementary:
High school:
Hobbies: Singing, dancing
Motto in life: Be kind even if others can’t.
Instructor’s comments for improvement:
highest rating for the group: / 50
AYAW HILABTI ANG INSTRUCTORS COMMENTS
Contents of cover page
(colored and well designed)

Doctrine about GOD at the upper most
Example. “I can do all things thru Christ who gives me strength”
Philippine Flag
Main Title “Mastery of Accounting – Intermediate and Advanced Courses”
TEAM 14% 63
Secondary Title “Hyperinflation” – changes from one project to the next
Edition: “December 2019” – changes from one project to the next

Produced and Simplified by Group Name (ex. Dracarys)
Names of members with personal selling point (with picture)
Example: Chonamae A. Requinto, “a true-blooded accounting lover”
Table of Contents
· Order of topics must be accdg to my suggested order and content. You may add.
· Pg.insert mo ug rows para ma.include all topics sa TOC accdg to my suggested content
plus addtl if u have
Topics
Topics to discuss, at a minimum, should include the ff. (better if you include more).
Financial reporting in hyperinflationary economies
Price level changes and purchasing power
Hyperinflation
Indicators of hyperinflation
Core principle
Restatement of FS
Historical cost (nominal cost) to constant peso
TEAM 14% 64
· Illustration identifying monetary and non-monetary items
· Non-monetary assets carried at cost
· Non-monetary assets carried at other than cost
· Non-monetary assets carried at NRV or fair value
· Revalued non-monetary items
· Impairment after restatement
· Investment in associate
· Borrowing costs
· Index-linked assets or liabilities
· Assets acquired thru issuance of non-interest-bearing liabilities
· First period application of PAS 29
· Statement of profit or loss and other comprehensive income
· Formula for restatement
· Gain or loss on net monetary position
· CF statement
· Corresponding figures
· Summary of restatement procedures
· Sample problem – restatement of FS = historical to constant peso
· Sample problem – gain or loss on net monetary position
· Sample problem – non-monetary items carried at other than cost
· Sample problem – equity = first time adoption
· Sample problem – approximation of average price index
Current cost accounting
· Determining current cost
· Holding gains and losses
· FS under current cost accounting
TEAM 14% 65
· Summary of restatement procedures
· Sample problem – restatement of FS = historical to current cost
Current cost to constant peso
· Gains and losses on net monetary position and holding gains and losses
· Summary of restatement procedures = current cost to constant peso
· Sample problem – restatement of FS = current cost / constant peso
· Sample problem –current cost / constant peso profit or loss
· Sample problem –depreciation expense
· Sample problem –cost of goods sold and ending inventory
Taxes
Deferred taxes
· Sample problem
Consolidated FS
Different ends of reporting period
Economies ceasing to be hyperinflationary
TEAM 14% 66
Each of the topics must have definitions and / or descriptions, concepts, Examples (theoretical
illustrations and / or cases and problems with solutions), source / original author, contributing
member/s.
note:
for each of the above, show source and contributor member
related literature (also with source and contributor)
Related Literature
There must be at least two related literature presented. The font must be (comic sans 9 only for
related literature)
Exhibits
Show exhibits (e.g., pictures, graphs, tables, etc)
exhibits must also have reference or source
(sample exhibit and source)
TEAM 14% 67
Source: https://www.indiamart.com/proddetail/200-ml-milk-bottle-19399300697.html = retrieved
November 20,2019
Reference / source format example:

Book title, edition, author, page number/s
Ex. Intermediate Accounting 1A, 2018, Millan, Z V, page 20-22
Complete URL, date retrieved

Ex. https://www.investopedia.com/top-financial-stocks-4582168 = retrieved
11/15/2019
Indention must be consistent across the entire document
Retrieved = past tense dapat
Contributing member = immediately below source.
Example for source and contributor:
Measurement of Cash (this part is the topic or related literature, but RL must have diff font style)
Cash is valued at its face amount or face value. However, cash in foreign currency should be measured
at the exchange rate at the reporting date. Cash in banks undergoing financial difficulty or bankruptcy
TEAM 14% 68
should be measured at its estimated realizable value if the amount recoverable i estimated to be lower
than the face value.
(this is the sources)
Sources: Intermediate Accounting 1A, 2018, Millan, Z V, pages 39-40

Financial Accounting volume 1, 2014, Valix, C T, Peralta, J F, Valix, C A
M, pages 183-184
https://www.investopedia.com/terms/c/cash.asp = retrieved on Nov. 18,

2019
(this is the contributor)
Contributed by: Bacho, Jessa C.
Format of group members profile page:

Group name (upper most)
Each member
Picture
Full name
Birthday
Address
Contact number
Educational attainment – elem, HS, college
Special skills
Honors, awards, personal and professional achievements
hobbies
Motto in life
Provide spacing from one member to another in profile. Ayaw pud ibitin lyk pic on page 38 and
description on page 39
TEAM 14% 69
Use the ff formatting styles:
Tahoma 11
The font must be comic sans ms 9 only for related literature)
Margins all = .75
Short bond paper
e.justify tanan except the ff:
· Pangit result pg justify
· Source and contributor
· Entries
· Tables contents
Make sure black ang tanan font color except URL na blue. Ang uban gray and other color man
gud.
TEAM 14% 70

Proj 2 Ae02mw Team 14

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Table of Contents

FINANCIAL REPORTING IN HYPERINFLANATORY ECONOMIES 3

PRICE LEVEL CHANGES AND PURCHASING POWER 4

HISTORICAL COST (NOMINAL COST) TO CONSTANT PESO 8

Illustration 1: Identifying monetary and non-monetary items 10

Non-monetary assets carried at cost 11

Non-monetary assets carried at other than cost 12

Non-monetary assets carried at NRV or fair value 12

Revalued non-monetary items 12

Impairment after restatement 13

Index-linked assets or liabilities 14

Assets acquired through issuance of non-interest bearing liabilities 14

First period application of PAS 29 14

Statement of profit or loss and other comprehensive income 15

Formula for restatement 15

Gain or loss on net monetary position 16

Statement of cash flows 17

Summary of restatement procedures - Historical to Constant peso 17

Illustration 3: Gain or loss on net monetary position 26

Illustration 4: Non-monetary items carried at other than cost 28

Illustration 5: Equity - First time adoption 29

Illustration 6: Approximation of average price index 30

CURRENT COST ACCOUNTING 30

Determining current cost 31

Holding gains and losses 31

FS under current cost accounting 31

Summary of restatement procedures 32

Illustration 1: Restatement of FS - Historical to current cost 33

CURRENT COST TO CONSTANT PESO 38

Summary of restatement procedures 39

Illustration 1: Restatement of FS - Current cost to Constant peso 40

Illustration 2: Current cost to Constant peso profit or loss 45

Illustration 3: Depreciation expense 48

Illustration 4: Cost of goods sold and ending inventory 49

Illustration 1: Restatement of deferred tax liability 52

CONSOLIDATED FINANCIAL STATEMENTS 53

DIFFERENT ENDS OF REPORTING PERIOD 53

ECONOMIES CEASING TO BE HYPERINFLANATORY 53

REVIEW OF RELATED LITERATURE 54

TEAM 14% PROFILE 61

FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES

Source: Intermediate Financial Accounting Part 3, 2016, Millan Z V, page 474

Contributor: Chriezle Mae Sanchez

PRICE LEVEL CHANGES AND PURCHASING POWER

Source: Intermediate Financial Accounting Part 3, 2016, Millan Z V, page 474-

Contributor: Chriezle Mae Sanchez

Contributor: Chriezle Mae Sanchez

Source: Intermediate Financial Accounting Part 3, 2016, Millan Z V, page 475

Contributor: Chriezle Mae Sanchez

Hyperinflation is indicated by characteristics of the economic environment of a country which include

Source: Intermediate Financial Accounting Part 3, 2016, Millan Z V, page 476

Contributor: Almira N. Concon

Source: Intermediate Financial Accounting Part 3, 2016, Millan Z V, page 477

Contributor: Almira N. Concon

RESTATEMENT OF FINANCIAL STATEMENT

Two (2) restatement procedure under PAS 29 are:

a. Historical cost (Nominal cost) to Constant Peso

Source: Intermediate Financial Accounting Part 3, 2016, Millan Z V, pages 477-

Contributor: Almira N. Concon

HISTORICAL COST (NOMINAL COST) TO CONSTANT PESO

Statement of Financial Position

Illustration 1: Identifying monetary and non-monetary items