Notice in footnote f6, that the R$325 net gain on permanent assets adjusted up-
ward for inflation, is greater than the net adjustment to capital and reserves, R$275,
resulting in a R$50 gain on the correction. This gain is reported on the income state-
ment. Also, note that when permanent assets are revalued, both the depreciation and
the provision for depreciation are adjusted.
20.10 STATUS OF ACCOUNTING STANDARDS AND PRACTICES ON INFLATION IN
THE WORLD AND MAJOR COUNTRIES. The International Accounting Standards
Board issued IAS No. 15, “Information Reflecting the Effects of Changing Prices,”
which recommends that large publicly traded enterprises disclose information using
any method that adjusts for the effects of changing prices. According to IAS No. 15^23
(paragraph 20), the minimum disclosures are:
(a) the adjustments to or the adjusted amounts of depreciation of property, plant and
equipment and cost of sales that are necessary to reflect the effects of changing prices.
(b) adjustments relating to monetary items, the effect of borrowing, or equity interests
described in paragraphs 15 N17, when such adjustments are taken into account in de-
termining income under the method adopted; and
(c) the overall effects on results of adjustments made to reflect the effects of changing
prices.
In addition, under the current cost approach the current cost of property, plant and
equipment and of inventories are relevant and are disclosed.The reference in the preceding quote to paragraphs 15 to 17 relates to a discussion,
the essence of which is that, under current cost methods, income is recognized after
the operating capacity of the enterprise has been maintained (paragraph 15). A dif-
ferent point of view, also discussed, maintains that it is not necessary to recognize in
the income statement the replacement cost of assets if they are financed by borrow-
ing (paragraph 20). There is also a discussion of the application of a general price
index to the shareholders’ interests (paragraph 17). The effective date of the standard
was for financial statements covering periods beginning on or after January 1, 1983.
In IAS No. 15, no examples were presented.
Subsequently, the IASB published another standard on inflation adjustments, IAS
No. 29, “Financial Reporting in Hyperinflationary Economies,” dated July 1, 1989.
This standard emphasizes that, in a hyperinflationary economy, financial results in a
local currency without restatement are not useful. IAS No. 29 explains that it is a
matter of judgment when restatement becomes necessary but that hyperinflation is in-
dicated by such characteristics as mentioned earlier in this chapter.
The standard explains that, in a hyperinflationary economy, financial statements,
whether on a historical cost basis or a current cost approach, are useful only if they
are expressed in terms of the measuring unit current at the balance sheet date. Thus,
IAS No. 29 applies to the primary financial statements.
The restatement requires the use of a general price index that reflects changes in
general purchasing power, and IAS No. 29 suggests that all enterprises in the same
country use the same index. Both historical cost and current cost statements require
restatement, as well as the determination of a gain or a loss on the net monetary po-
sition. No examples were given.
20.10 STATUS OF ACCOUNTING STANDARDS IN THE WORLD 20 • 21(^23) IAS No. 15, paragraph 20.