IFRIC Interpretation 7, Par. 3
Applying the
Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary
Economies states:
‘Consensus
In the reporting
period in which an entity identifies the existence of hyperinflation in the
economy of its functional currency, not having been hyperinflationary in
the prior period, the entity shall apply the requirements of IAS 29 as if the
economy had always been hyperinflationary. Therefore, in relation to non-monetary items measured at
historical cost, the entity’s opening statement of financial
position at the beginning of the earliest period presented in the financial
statements shall be restated to reflect the effect of inflation from the date the assets
were acquired and the liabilities were incurred or assumed til the end of the
reporting period. For non-monetary
items carried in the opening statement of
financial position 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.’
Milton Friedman stated more than 50 years ago:
‘Inflation is always
and everywhere a monetary phenomenon.’
Profs Gucenme and Arsoy state:
‘Purchasing power of non monetary items does
not change in spite of variation in national currency value.’
Conclusion to be reached from Milton Friedman´s and Profs
Gucenme´s and Arsoy´s statements:
Inflation has no
effect on the real value of non-monetary items. It is impossible for inflation
to have any effect on non-monetary items. Inflation only has an effect on money
and other monetary items. Nothing else.
What IFRIC 7 is
referring to is not the effect of inflation
on non-monetary items, but, the effect of the stable measuring unit assumption, the underlying principle
of Historical Cost Accounting, on non-monetary items.
Nicolaas Smith
Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.
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