Name: de la Torre, Jaime Lee

Year&Set: BSA 2 - B

REPORTING IN HYPERINFLATIONARY ECONOMY (PAS 29)

STABLE MONETARY ASSUMPTION

 Purchasing power is assumed to be stable.
GENERAL PRICE INDEX
 The index number used for restatement of Financial Statements.
 Constructed by the government like the Bangko Sentral ng Pilipinas.
INFLATION
-when the general price index increase, the purchasing power of money decrease.
DEFLATION
-when the general price index decrease, the purchasing power of money increase.

HYPERINFLATION
 PAS 29 on financial reporting in a hyperinflationary economy does not establish
an absolute rate at which hyperinflation is deemed to arise.
 Hyperinflation is a matter of judgement.

INDICATORS OF HYPERINFLATION
a. The general population prefers to keep its wealth in nonmonetary assets or in
relatively stable foreign currency.
Accordingly, amounts held in local currency are immediately invested in
nonmonetary assets or stable foreign currency to maintain purchasing power.
b. General population regards monetary amounts not in terms of local currency but in
terms of a relatively stable foreign 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.
e. The cumulative rate over 3 years is approaching or exceeds 100%.

Although PAS 29 sets out the characteristics that may indicate hyperinflationary
economy, it also states that judgment may be used in determining whether restatement
of financial statements is required.

FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMY

 PAS 29, paragraph 8, provides that the financial statements of an entity that
reports in the currency of a hyperinflationary economy shall be stated in terms of
the measuring unit current at the end of reporting period.
 Presentation of the information required under PAS 29 as a supplement to
unrestated financial statements is not permitted.

CONSTANT PESO ACCOUNTING

 Constant peso accounting is the restatement of conventional or historical financial
statements in terms of the current purchasing power of the peso through the use
of index number.
MONETARY AND NONMONETARY ITEMS

MONETARY ITEMS
 PAS 21 defines monetary items as money held and assets and liabilities to be
received or paid in fixed or determinable amount of money.
NONMONETARY ITEMS
 Nonmonetary items, by the process of exclusion, may be defined as those items
that cannot be classified as monetary.

PURCHASING POWER OF MONEY

 The goods and services that money can buy.

Monetary Assets Monetary

Liabilities
INFLATION Purchasing power Purchasing power
loss gain

DEFLATION Purchasing power Purchasing power

gain loss

RESTATEMENT OF FINANCIAL STATEMENTS

 Only nonmonetary items are restated when preparing constant peso financial
statements.

FORMULA FOR RESTATEMENT

Index number at end of reporting period

X HISTORICAL COST
Index number on acquisition date

PROCEDURE FOR RESTATEMENT

1. The items in the financial statements are classified into monetary and nonmonetary.
2. Monetary items are not restated.
3. Nonmonetary items are restated.
Some nonmonetary items that are carried at amounts current at end of reporting
period, such as net realizable value and fair value are no longer restated.
4. Some nonmonetary items are carried at revalued amount. In such case, the carrying
amounts are restated from the date of revaluation.
5. All items in the income statement are restated by applying the average index during
the year.
6. The general purchasing power gain or loss is computed on monetary items.
7. The restated amount of property, plant and equipment and intangible asset is
reduced when it exceeds the recoverable amount.
8. Any revaluation surplus recognized previously is eliminated.
9. Retained earnings would be the balancing figure in the restated statement financial
position.
10. When comparative statements are prepared, the monetary items of the preceding
year are expressed in terms of the index number at the end of the current year.
Name: de la Torre, Jaime Lee
Year&Set: BSA 2 - B

INSURANCE CONTRACTS (PFRS 4)

 PFRS 4 applies to all insurance contracts (including reinsurance contracts) that an

entity issues and to reinsurance contracts that it holds, except for specified
contracts covered by other Standards. It does not apply to other assets and
liabilities of an insurer, such as financial assets and financial liabilities within the
scope of PFRS 9. Furthermore, it does not address accounting by policyholders.

INSURANCE CONTRACTS
 insurance contract is a "contract under which one party (the insurer) accepts
significant insurance risk from another party (the policyholder) by agreeing to
compensate the policyholder if a specified uncertain future event (the insured
event) adversely affects the policyholder." [IFRS 4.Appendix A]

ACCOUNTING POLICIES
 IFRS exempts an insurer temporarily (until completion of Phase II of the
Insurance Project) from some requirements of other IFRSs, including the
requirement to consider IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors in selecting accounting policies for insurance contracts.
However, the standard: [IFRS 4.14]
 prohibits provisions for possible claims under contracts that are not in existence
at the reporting date (such as catastrophe and equalization provisions)
 requires a test for the adequacy of recognized insurance liabilities and an
impairment test for reinsurance assets
 requires an insurer to keep insurance liabilities in its balance sheet until they are
discharged or cancelled, or expire, and prohibits offsetting insurance liabilities
against related reinsurance assets and income or expense from reinsurance
contracts against the expense or income from the related insurance contract.

TYPES OF INSURANCE CONTRACTS

1. DIRECT INSURANCE CONTRACT - an insurance contract where the insurer
directly accepts risk from the insured and assumes the sole obligation to compensate
the insured in case of a loss event.
2. REINSURANCE CONTRACT - an insurance contract issued by one insurer (the
reinsurer) to compensate another insurer (the cedant) for losses on one or more
contracts issued by the cedant.

DISCLOSURES
 Information that helps users understand the amounts in the insurer's financial
statements that arise from insurance contracts.
 Information that helps users to evaluate the nature and extent of risks arising from
insurance contracts.