Objective
IAS 29 provides guidance for entities operating in hyperinflationary economies so that their financial statements reflect real (current purchasing power) rather than outdated nominal amounts.
In simple terms:
When inflation is extremely high, financial statements in historical cost terms become misleading, so they must be restated to reflect the current value of money.
🧾 1. When to Apply IAS 29
An economy is considered hyperinflationary when the currency loses purchasing power rapidly.
IAS 29 does not define a strict threshold, but indicators include:
-
Cumulative inflation rate ≈ 100% or more over 3 years
-
Prices are linked to price indices
-
People prefer to hold wealth in non-monetary assets or stable foreign currencies
-
Credit sales or wages are indexed to prices
-
Interest rates, wages, and prices are adjusted frequently for inflation
Example:
Countries such as Zimbabwe, Venezuela, Argentina, and Sudan have been considered hyperinflationary in certain periods.
🧮 2. Objective of Restatement
To express the financial statements in terms of the measuring unit current at the end of the reporting period, i.e., adjust all amounts to reflect current purchasing power.
🧱 3. Entities Covered
Applies to entities whose functional currency is that of a hyperinflationary economy, regardless of whether they use:
-
Historical cost, or
-
Current cost accounting.
💡 4. Key Principles of IAS 29
A. Restate Non-Monetary Items
Non-monetary items (property, plant & equipment, inventories, equity) are restated using a general price index.
Formula:
Example 1:
A building purchased in 20X1 for $1,000,000
-
Price index in 20X1 = 100
-
Price index in 20X5 = 300
✅ Restated carrying amount = $3,000,000
B. Monetary Items
Monetary items (cash, receivables, payables, loans) are not restated, because they are already expressed in current monetary terms.
However, their purchasing power loss/gain is recognized in profit or loss.
Example 2:
Entity holds cash = $100,000 at start of year.
Inflation during year = 50%.
Purchasing power loss = 50% × $100,000 = $50,000.
👉 Recognize loss of $50,000 in profit or loss.
C. Equity Items
All equity components (share capital, retained earnings, reserves) are restated using the price index from the date of contribution or generation.
Example 3:
-
Share capital issued in 20X1 = $500,000 (index 100)
-
Year-end index = 250
✅ Restated share capital = $1,250,000
D. Income Statement Items
All income and expense items are restated to the current purchasing power at the reporting date.
Alternatively, all figures may be re-stated by applying the average index for the year.
Example 4:
-
Salary expense in March (index 120) = $20,000
-
Year-end index = 180
20,000×180 / 120=30,000
✅ Restated salary expense = $30,000
🔄 5. Gain or Loss on Net Monetary Position
Since inflation affects monetary assets and liabilities differently, entities calculate a net monetary gain or loss.
Formula:
Net monetary gain/loss=Change in general price level × (Monetary liabilities−Monetary assets)
-
If liabilities > assets → gain (since debt loses value in real terms)
-
If assets > liabilities → loss
Example 5:
-
Monetary assets = $500,000
-
Monetary liabilities = $800,000
-
Inflation = 50%
Net monetary position = $300,000 (liability net)
Gain = 50% × $300,000 = $150,000
✅ Recognize gain $150,000 in profit or loss
🧾 6. Financial Statements to Restate
| Statement | Adjustment |
|---|---|
| Statement of Financial Position | Non-monetary assets, liabilities, and equity restated using price index |
| Statement of Profit or Loss | All items restated; monetary gain/loss recognized |
| Statement of Cash Flows | Based on restated figures |
| Comparative Information | Also restated into current-year measuring unit |
📊 7. Example Summary
Scenario:
-
Inflation: 100% during year
-
Equipment purchased 2 years ago for $500,000
-
Price index then: 200; now: 400
Restated Equipment Value:
Monetary Loss:
-
Cash = $100,000
-
Liabilities = $50,000
→ Net monetary asset = $50,000 → loss of 100% × $50,000 = $50,000.
📘 8. Disclosures Required
Entities must disclose:
-
That financial statements are prepared under IAS 29
-
The price index used and inflation rate during the period
-
The method used to restate the financial statements
-
The gain or loss on net monetary position
🧩 9. Key Summary Table
| Category | Treatment | Example |
|---|---|---|
| Monetary items | Not restated; recognize gain/loss | Cash, payables, receivables |
| Non-monetary items | Restate using price index | PPE, inventories |
| Equity | Restate using index from contribution date | Share capital |
| Income & expenses | Restate using year-end or average index | Salaries, sales |
| Comparatives | Restated to current-year currency | Previous year’s figures |
🎯 10. Purpose of IAS 29
-
Ensure financial statements present real value, not distorted by inflation
-
Maintain comparability over time
-
Reflect the true financial position and performance in hyperinflationary environments