CHAPTER 19HYPERINFLATION General price change Ang general price change ay ang pag-increase o pag-decrease ng pankalahatang level ng prices ng goods or services throughout the economy. Sa pag-increase sa general price ang kakayahan na makabili ng pera ay nababawasan. Kilalaito sa tawag na inflation. Sa pag-decrease naman sa general price, ibig sabihin naang purchasing power ng pera ay nadadagdagan. Kilala ito sa tawag na deflation. Ang ibig sabihin ng purchasing power ay ang kakayahang bilhin ng pera na goods and services. Ang general price changes ay mini-measure gamit ang general price index na constructed ng isang government body like the Bangko Sentral ng Pilipinas. Ang general price indeay dinesigned para ipakita kung paano ang overall level ng prices sa economy ay nagbabago overtime. Specific price change Ang specific price change ay ang pag-increase o pag-decrease ng presyo ng isang specific good or service, kagaya ng food, clothing and car. Ang specific price change occurs primarily dahil sa pagbabago ng supply at demand ng isang particular na goods ang services. Sa bawat pagbabago sa supply at demand ay maaaring magbago rin ang presyo ng isang bilihin. Halimbawa nag-increase ang demand for phones, then ang specific price ng phones ay mag-iincrease. Ang interest rates. Kahit ng nag-set out nag PAS 29 ng characteristics na nagi-indicate sa hyperinflationary economic. paragraph 8. Financial reporting in hyperinflationary economy PAS29. Ang general population prefers to keep its wealth in nonmonetary aasets or in relatively stable foreign currency. The general population regards monetary amounts not in terms of local currency but in terms of relatively stable foreign currency. wages. Ang cummulatie rate over 3 years is approaching or exceeds 100%. Ang sales and purchases on credit takes plce at prices kung saan it compensate for the expected loss ng purchasing power during the credit period kahit ng sa maikling period lang. provides na ang financial statements ng entity that reports in the currency ng isang hyperinflationary economy. still it also states na maaaring gamitin ang judgment to determine kung required ba na i-restate nag financial statements. Ang hyperinflation is a matter of judgment. ay dapat na stated in terms ng measuring unit current at the end of the reporting period. . whether they are based sa historical cost approach or current cost approach. Ang presentation ng mga information na nire-require under PAS 29 bilang additional to unrestated statemtents ay hindi permitted.Definition of hyperinflation PAS 29 ng financial reporting sa hyperinflationary economy ay hindi nag-establish ng absolute na rate kung saan ang hyperinflation ay maaaring mag-arise. b. e. Ang hyperinflation ay indicated by characteristics ng economic environment ng isang bansa which include but not limited to the following: a. Ang restatement ng financial statement ng isang entity na nagre-report sa currency ng hyperinflationary economy is accomplished by means of constant peso accounting and current cost accounting. d. at prices ay linked to a price index. c. Monetary assets and liabilities ay remain the same regardless sa pagbabago sa general price level.000 na collectible after 3 years. Kapag kinolekta ultimately. Ang monetary items ay assets at liabilities na ang amount ay fixed on the sense na ang amount nito ay ultimately realizable or ultimately payable ay ang parehas na amount na maga-appear sa historical statements.Constant peso accounting Ang constant peso accounting ay restatement ng conventional or historical financial statemtents in terms ng current purchasing power ng peso gamit ang index number. and assets and liabilities na matatanggap or ibabayad in a fixed or determinable amount of money. This accounts receivable ay a monetary asset.000. . kagaya ng mismong amount nito before. ang amount ay hindi magbabago kahit pa na magbago ang price level during the 3-year period. Monetary items refer to cash and assets that represent a fixed amount of pesos to be received or paid. Ang constant peso accounting at tinatawag din na purchasing power or price level accounting. Ang essential feature nito is a right na maka-receive or an obligation na magdeliver ng isang determinable amount of money. Ang traditional na concept sa pagpe-prepare ng financial statements na based sa historical cost ay tinatawag na nominal peso accounting. Illustration Kung ang receivable na nagkakahalaga ng P500. ang amount na mare-realize ay P500. Monetary items Defined by PAS 21. ang monetary items ay money held. Ang essential feature nito is the absence ng right to receive or an obligation to deliver a fixed or determinable amount of money. Examples of monetary and nonmonetary items Following is a list of statement of financial position items with their proper classification as monetary or nonmonetary.Nonmonetary items Nonmonetary items. may be defined as those items na hindi classified as monetary items. advertising. Tinatawag na nonmonetary ang isang item kung ang peso amount nito na reported sa financial statements ay iba sa amount that are ultimately realizable or payable. Monetary Nonmonetary Cash x Financial assets held for trading x Financial assets at FV through OCI x Financial assets at amortized cost x Accounts and Notes receivable x Allowance for doubtful accounts and notes x Inventories x Advances to employees x Prepaid insurance. rent x Prepaid interest x Receivables under finance lease x Long term receivables x Special deposits which are recoverable x Pension. by the process of exclusion. taxes. sinking and other fund Consisting of financial assets at FV x Consisting of bonds at amortized cost x Property. plant and equipment x Accumulated depreciation x . Sa period of inflation or pagtaas ng prices. ang purchasing power gain ay nare- reliazed sa monetary assets at ang purchasing power loss ay nai-incurred sa monetary liabilities. Gain or loss on purchasing power Purchasing power means the goods and services that money can buy. ang purchasing power loss ay nai-incurred sa monetary assets at ang purchasing power gain ay nare-realized sa monetary liabilities. . Sa period of deflation naman or pagbaba ng prices.Cash surrender value x Advances to suppliers x Discount on bonds payable x Intangible assets x Goodwill x Accounts and notes payable x Accrued expenses x Cash dividend payable x Liability for refundable deposits x Advances from customers x Accrued losses on firm purchase commitments x Bonds payable x Obligations underfinance lease x Pension benefits to be paid in cash x Provisions that are to be settled in cash x Deferred revenue x Noncontrolling interest x Preference share capital x Ordinary share capital x Share premium x Retained earnings *Retained earnings is residual and should not be classified as either monetary or nonmonetary. 2017 when the index number is 300. Ang objective ng constant peso accounting is to report elements of financial statements in terms of peso that have the same purchasing power.000 . the restated amount is computed as follows: Restated amount= (300/125) * P500. Formula of restatement Index number at end of reporting period X HistoricalCost Index number on acquisition date For example.000 when the index number is 125. 2016 for P500. If the land is to be restated on December 31. Ang monetary item ay hindi ire-restate dahil ito automatically na stated in terms sa current purchasing power of the peso.000 = P1200.What items are restated? Nonmonetary itemslamang ang maaaring i-restated kapag magpre-prepare ng constant peso financial statements. a land was acquired on January 1. 2. . halimbawa. property.Procedures for restatement 1. goodwill and other intangible asset is reduced kapag nag-exceed ito sa recoverable amount. 10. such as net realizable value or fair value. Some monetary items ay carried at amounts current at end of reporting period. Ang nonmonetary items re restated by applying ng geneal price indes mula date of acquisition hanngang end of reporting period. When comparative statements are prepared. plant and equipment. plant and equipment are revalued. Ang restated amount ng property. ang monetary items ng preceeding year ay express in terms sa index number at the current year. any revaluation surplus na recognized previously is eliminated. Lahat ng items sa income statement ay restated by applying the change in the general price index mula sa date kung kelan ang items ng income and expense ay initially recorded. 7. 4. 5. Insuch case. 9. the average index may be used. Some nonmonetary items ay carried at amount current at date other than acquisition date. Ang inventory ay carried at net realizable value and ang financial assets na measured at fair value ay hindi na ire-restate. Nagpe-pertain lang ito sa monetary items. Ang general purchasing power gain or loss is computed. for practical purposes. Ang gain or loss sa purchasing power ay included sa profit or loss and separately disclosed. 8. 11. 6. However. 3. Ang restatement is made by applying a general price index. Ang items sa financial statement ay classified into monetary at nonmonetary. ang carrying amounts ay restated mula sa date ng revaluation. Ang retained earnings ang magsisilbing balancing figure sa restated statement financial position. Ang monetary items ay hindi nire-restate dahil ito automatically na stated in terms sa current purchasing power of the peso.