the table below illustrates how the restatement of a non monetary item for example p 612355

Restatement of property, plant and equipment

The table below illustrates how the restatement of a non-monetary item (for example, property, plant and equipment) would be calculated in accordance with the requirements of IAS 29.

The calculations described under (a)-(e) all require estimates regarding the general price index at given dates and are sometimes based on averages or best estimates of the actual date of the transaction.

When an entity purchases an asset and payment is deferred beyond normal credit terms, it would normally recognise the present value of the cash payment as its cost. [IAS 16.23]. When it is impracticable to determine the amount of interest, IAS 29 provides relief by allowing such assets to be restated from the payment date rather than the date of purchase. [IAS 29.22].

In order to arrive at the restated cost of the non-monetary items, the provisional restated cost needs to be adjusted as follows: [IAS 29.19, 21]

Capitalisation of all borrowing costs is not considered appropriate under IAS 29 because of the risk of double counting as the entity would both restate the capital expenditure financed by borrowing and capitalise that part of the borrowing costs that compensates for the inflation during the same period. [IAS 29.21]. The difficulty when borrowing costs are capitalised is that IAS 29 only permits capitalisation of borrowing costs to the extent that those costs do not compensate for inflation. Unfortunately, the standard does not provide any guidance on how an entity should go about determining the component of borrowing costs that compensates for the effects of inflation.

It is possible that an IAS 29 inflation adjustment based on the general price index leads to non-monetary assets being stated above their recoverable amount. Therefore, IAS 29 requires that the restated amount of a non-monetary item is reduced, in accordance with the appropriate standard, when it exceeds its recoverable amount from the item’s future use (including sale or other disposal). This requirement should be taken to mean that any overstatement of non-monetary assets not within the scope of IAS 39 should be calculated and accounted for in accordance with IAS 36 – Impairment of Assets. [IAS 29.19].

The example below, illustrates how, after it has restated the historical cost based carrying amount of property, plant and equipment by applying the general price index, an entity can adjust the net book value restated for hyperinflation: