UK GAAP 2019

Chapter 28Hyperinflation

• 1 INTRODUCTION
  • 1.1 The concept of hyperinflation
  • 1.2 Relevance in the UK
• 2 COMPARISON BETWEEN SECTION 31 AND IFRS
• 3 REQUIREMENTS OF SECTION 31 FOR HYPERINFLATION
  • 3.1 Terms used in Section 31
  • 3.2 A hyperinflationary economy
  • 3.3 Measuring unit in the financial statements
  • 3.4 Procedures for restating historical cost financial statements
    • 3.4.1 Statement of financial position
    • 3.4.2 Statement of comprehensive income and income statement
    • 3.4.3 Statement of cash flows
    • 3.4.4 Gain or loss on net monetary position
    • 3.4.5 Comparative information
    • 3.4.6 Economies ceasing to be hyperinflationary
  • 3.5 Accounting for a hyperinflationary subsidiary in consolidated financial statements
  • 3.6 Disclosures

Chapter 28Hyperinflation

1 INTRODUCTION

1.1 The concept of hyperinflation

Accounting standards are applied on the assumption that the value of money (the unit of measurement) is constant over time, which normally is an acceptable practical assumption. However, when the effect of inflation on the value of money is no longer negligible, the usefulness of historical cost based financial reporting is often significantly reduced. High rates of inflation give rise to a number of problems for entities that prepare their financial statements on a historical cost basis, for example:

• historical cost figures expressed in terms of monetary units do not show the ‘value to the business’ of assets;
• holding gains on non-monetary assets that are reported as operating profits ...