 PAS 29

financial reporting in hyperinflationary economies

Introduction

PAS 29 prescribes the restatement procedures for the financial statements of an entity whose functional
currency is the currency of a hyperinflationary economy.

Inflation is normally ignored in accounting due to the stable monetary unit assumption. However, when
inflation is very high (‘hyper’), it can no longer be ignored. This is because financial statements are stated
in terms of money and when money loses its purchasing power at a very high rate, the financial
statements become misleading. The financial statements therefore must be restated otherwise they are
useless.

 Inflation refers to a general increase in prices and decrease in the purchasing power of money.

PAS 29 does not prescribe an absolute rate at which hyperinflation is deemed to arise. This is a matter of
judgment. Instead, PAS 29 provides the following indicators which an entity considers when determining
the existence of hyperinflation:

a. The general population prefers to keep its wealth in non-monetary assets or in a relatively stable
foreign currency. Amounts of local currency held are immediately invested to maintain
purchasing power;

b. The general population regards monetary amounts not in terms of the local currency but in
terms of a relatively stable foreign currency. Prices may be quoted in that currency;

c. 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;

d. Interest rates, wages and prices are linked to a price index; and

e. The cumulative inflation rate over three years is approaching, or exceeds, 100%.

Core Principle

The financial statements of an entity that reports in the currency of a hyperinflationary economy,
whether they are base on historical cost or current cost, shall be stated in terms of the measuring unit
current at the end of the reporting period. Comparative figures for prior period(s) shall also be restated
into the same current measuring unit.

PAS 29 prohibits the presentation of the required information as supplement to unrestated financial
statements. PAS 29 discourages the separate presentation of the financial statements before
restatement.

Restatement of Financial Statements

Financial statements are restated by applying a general price index as follows:

*See discussions of monetary and nonmonetary items in PAS 21

The corresponding figures for prior period(s), whether monetary or nonmonetary, are all restated.

The gain or loss on the net monetary position resulting from the restatements is recognized in profit or
loss.

Formula for restatement:

*When it is impracticable to determine the historical price indices, such as for transactions recurring
very frequently, an entity may use the average price index for the period.

Illustration:

Entity A operates in a hyperinflationary economy. Entity A’s building has a carrying amount of ₱1M on
December 31, 20x2. The building was acquired on June 21, 20x0. The general price indices are as
follows:

June 21, 20x0 100

December 31, 20x1 150

Average – 20x2 180

December 31, 20x2 200

 The building’s carrying amount is restated as follows:

200Current price index , Dec . 31 , 20 x 2

1M x
100 Historical price index , June 21, 20 x 0

= 2M restated amount to current measuring unit as of Dec. 31, 20x2

Assume that the 20x2 depreciation expense on the building is ₱200,000. The depreciation is restated in
the same manner as follows: (200k x 200/100) = 400K.

Assume further that the carrying amount of the building is ₱1.2M on December 31, 20x1. This
corresponding figure is restated also in the same manner as follows: (1.2M x 200/100) = 2.4M.

Consolidated financial statements

If any of the entities belonging to a group entity reports in a hyperinflationary economy, the financial
statements of that entity needs to be restated first before they are consolidated in the group’s financial
statements.
If a foreign operation reports in a hyperinflationary economy, its financial statements are also restated
first under PAS 29 before they are translated in accordance with PAS 21.

Disclosures

a. The fact that the financial statements, including corresponding figures, have been restated for
changes in the general purchasing power of the reporting currency.

b. Whether the financial statements are based on historical cost or current cost.

c. The identity and level of the price index at the end of the reporting period and the movements
during the current and previous reporting periods.