IPSAS 10

Hyperinflation training
Standards
• IPSAS 10 Financial Reporting in Hyperinflationary Economies
Things I will not cover
• What is inflation and hyper inflation
• What causes hyperinflation
• Indicators of hyper inflation
Inflation
• By inflation we mean a general rise in prices throughout the economy.
Government policy is used to keep inflation both low and stable.
Hyperinflation
• In economics, hyperinflation occurs when a country experiences very
high, accelerating, and perceptibly "unstoppable" rates of inflation.
Two things happen as a consequence:
• General price level of goods and services increase, meaning currency
loses real value.
• The real values of economic items generally stay the same.
Hyper Inflation
• Main causes of increasing inflation in Zimbabwe
• What are the potential impact of increasing inflation on the economy
• Potential impacts
Hyper-Inflation
• The Standard does not establish an absolute rate at which
hyperinflation is deemed to arise (Para 3).
• In hyperinflationary, reporting of operating results and financial
position in the local currency without restatement is not useful.
• Money loses purchasing power 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.
Hyper-Inflation
• It is a matter of judgement when restatement of financial statements
becomes necessary
Hyper Inflation Indicators

1 2 3 4

The general the general population sales and purchases on (e) the cumulative
population prefers to regards monetary credit take place at prices inflation rate over three
keep its wealth in amounts not in terms of that compensate for the years is approaching, or
the local currency but in expected loss of exceeds, 100%.
non-monetary assets terms of a relatively purchasing power(d)
or in a relatively stable foreign currency. interest rates, wages and
stable foreign prices are linked to a
currency.; price index; and
Applying IPSAS 10

• Unlike other IPSAs, which allow entities to exercise judgement based

on the facts and circumstances, IPSAS 10 recommends that all entities
apply the standard from the same date
Consensus
• PAAB Declared we are in hyperinflation effective 1 July 2019
IPSAS 10 Reporting : Restatement

• Selection of a general price index.

• Segregation of monetary and non-monetary items.
• Restatement of non-monetary items (excluding shareholders’ equity).
• Restatement of shareholders’ equity.
• Restatement of comprehensive income.
• Calculation and proof of the monetary gain or loss.
• Comparatives.
• Other considerations.
Restating monetary and non-monetary items
• What are monetary assets and liabilities
• Monetary items are units of currency held and assets and liabilities to
be received or paid in a fixed or determinable number of units of
currency.
Assets and liabilities
• Property, plant and equipment
• Investment property
• Financial Assets
• Right of Use Asset
• Inventory
• Trade & other receivables
• Cash and cash equivalents
• Current liabilities
• Trade and other payables
• Provision for leave pay
IPSAS 10 Principles for restatement
1. Management should restate all balance sheet amounts that are not
expressed in terms of the measuring unit current at the balance sheet
date.
2. Monetary items do not need to be restated, because they represent
money held, to be received or to be paid i.e are therefore already
expressed in current purchasing power at the reporting date.
3. Non-monetary assets and liabilities are restated in terms of the
measuring unit current at the end of the reporting period.
4. No restatement is required for non-monetary assets and liabilities
carried at amounts current at the end of the reporting period, such as
net realisable value or fair value
IPSAS 10Principles for restatement
5. Some non‑monetary items are carried at amounts current at dates
other than that of acquisition or 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.
6. The prior year comparatives, for both monetary and non-monetary
items, are restated in terms of the measuring unit current at the end of
the latest reporting period.
7. If prior year financial statements have already been prepared to
conform to IPSAS 10, the current year change in the general price index is
applied to the prior year financial statements.
1st year of Hyperinflation
1. In the first year of adopting IPSAS 10, the entity shall apply the
requirements of IPSAS 10 as if the economy had always been
hyperinflationary.
2. For non‑monetary items measured at historical cost, the entity’s
opening SFP shall be restated to reflect the effect of inflation from the
date the assets were acquired and the liabilities were incurred or
assumed until the end of the reporting period.
3. For non‑monetary items carried in the opening SFP at amounts current
at dates other than those of acquisition or incurrence, that restatement
shall reflect instead the effect of inflation from the dates those carrying
amounts were determined until the end of the reporting period.
PPE Restatement
• Detailed records of the acquisition dates of items of property, plant
and equipment may not be available or capable of estimation.
• In these rare circumstances, it may be necessary, in the first period of
application of this Standard, to use an independent professional
assessment of the value of the items as the basis for their
restatement.
General Price Index
• A general price index may not be available for the periods for which
the restatement of property, plant and equipment is required by this
Standard.
• In these circumstances, it may be necessary to use an estimate based,
for example, on the movements in the exchange rate between the
functional currency and a relatively stable foreign currency.
Inflation and CPI Index
Selection of a general price index

• The restatement of financial statements in accordance with this

Standard requires the use of a 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.
• Conversion factors
Conversion factors (Using CPI Indices)
The following CPI indices where obtained from the Statistical Office, use
them to determine the
2017- 15
2018 - 25
2019 - 95
2020 - 220
Example
• ZINARA has a plant with an NBV value of $30 million at 31 Dec 2019
(40million – 2018). Assume that ZimDef identifies the existence of
hyperinflation in, for example, October 2019 and therefore applies IAS
29 from the beginning of the financial year.
• The plant was commissioned in 2017. The following CPI indices are
provided:
2017 - 95
2018 - 135
2019 - 223
Case Study 1
• Using the Inflation Indices, calculate conversion factors for the year
ended 31 December 2019, the following periods:
• January 2018
• January 2019
• February 2019
• December 2019
Principles
1. At the beginning of the first period of application of this Standard,
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 or
otherwise arose.
2. Any revaluation surplus that arose in previous periods is eliminated.
3. Restated retained earnings are derived from all the other amounts
in the restated statement of financial position.
Case Study 3
• IPEC Acquired a building in July 2013 for $750 000. The building was
revalued as follows

31 Dec 2015 780 000

31 Dec 2017 920 000
28 February 2020 1 500 00

• The current net book value is 2020 $1 350 000 (2019: 800 000).The balance
in the Revaluation surplus account is $780 000.
• Present the inflation adjusted building for year ended 31 Dec 2020
Case Study 4
• XXPF has the following piece of land which is carried at fair value. The
land was valued in 2009 Feb at $240 000.
• Fair Value Dec 2019: 1 350 000 (2018:850 000)
Case Study 5
• The following revenue for 2019
• January – 2 300 000
• February – 3 300 000

• What will be the inflation adjusted sales for this month.

Additional Principles
• The gain or loss on the net monetary position is included in profit or
loss.
• Companies have used different approaches in allocating the loss/gain
between current and prior year
Gain or loss
• The following calulations were done. Determine the monetary gain or
loss and how it should be treated

2019 2018
Motor Vehicles Historical 230 000 280 000
Motor Vehicles Inflation 330 000 310 000
adj
Finance costs historical 120 000 110 000
Finance costs Inflation ajy 135 000 122 000
Questions