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Wednesday, 31 March 2010

Constant and variable items defined in IFRS

The terms constant real value non-monetary items and variable real value non-monetary items are new specific terms for old concepts.

IFRS only define two economic items directly: monetary items (IAS 29 Par 12 and IAS 21 Par 8) and non-monetary items (IAS 29 Par 14). There are, however, three fundamentally different basic economic items in the economy:

1. Monetary items

2. Variable real value non-monetary items

3. Constant real value non-monetary items

Constant real value non-monetary items and variable real value non-monetary items are defined indirectly in IFRS.

According to the Framework, Par 104 (a) financial capital maintenance can be measured in units of constant purchasing power during low inflation and deflation. Although IAS 29 is only to be applied during hyperinflation, it defines monetary and non-monetary items in general. According to IAS 29 Par 12: “Monetary items are not restated because they are already expressed in terms of the monetary unit current at the balance sheet date.”

IAS 29 Par 14 defines non-monetary items as all items that are not monetary items. Since monetary items are not restated only non-monetary items can thus be measured in units of constant purchasing power or inflation-adjusted or restated or updated. As such, non-monetary items measured in units of constant purchasing power during low inflation and deflation are thus constant real value non-monetary items; e.g. all income statement items, all items in shareholders´ equity, trade debtors, trade creditors, taxes payable and receivable, etc.

Non-monetary items that are not measured in units of constant purchasing power during low inflation and deflation are thus variable real value non-monetary items since they have variable real values over time and are valued in terms of specific IFRS.

Kindest regards

Nicolaas Smith
realvalueaccounting@yahoo.com

Copyright © 2010 Nicolaas J Smith