GTM-TNHWN3R Verification: 8022f68be7f2a759 Monetary Assets | Phuket Thaiand | Aura Solution Company Limited

Monetary Assets

What are Non-Monetary Assets?

  • Prepayments or advance payments can either be monetary or non-monetary, based on a contract with a third party (the party to which payment was made).

  •  

  • If as per the contract, the pre-paid amount is non-refundable (which usually is) or if there is no contract and the probability of getting the amount back is very low, then it should be treated as a non-monetary asset.

  • Investments in preference shares shall be treated as monetary assets if there is a clause in the contract, by virtue of which, the redemption of preference shares has to be undertaken by the issuing entity after a certain time in the future. Otherwise, investments in preference shares will be treated as assets that are non-monetary.

Assets that can either be Monetary or Non-Monetary

  • Conversely speaking, non-monetary assets are those that do not have a value determinable in exact dollar terms. The value assets that are non-monetary change or fluctuate a lot over time and its cash convertibility is limited.

  • Therefore, these assets are not that liquid. Examples include property, plant & equipment, intangible assets (including goodwill), equity shares (some companies treat shares issued in foreign currency as monetary assets due to the absence of clear-cut directives), and Inventories.

  •  

  • A non-monetary asset like plant & machinery can see its value decline as the technology becomes obsolete. Its value depends upon certain factors such as changes in technology, supply-demand factors, etc. These factors are not relevant when it comes to the valuation of monetary assets.

Characteristics of Monetary Assets

Two key characteristics of these assets include:

  1. Change in real terms: Monetary assets are fixed in their dollar terms but are subject to changes in real terms, i.e., a relative change in buying power. For example, a sum of $100 can only buy you 2 dozens of apples now, compared to 3 dozens previously. This means that there has been a decline in real terms amounting to 33%, even though the dollar amount remains the same.

  1. Restatements in financial statements: They are not subject to a restatement of their recorded value in financial statements. In contrast, a non-monetary asset like land may be subject to depreciation or appreciation, depending upon market conditions.

 

Although, if the original figures are in units of foreign currency, then the value of these assets has to be stated according to the prevailing exchange rate on the closing date.

IAS 21 clearly states on the point:

  • Monetary assets are recorded using the closing exchange rate.

  • Non-monetary assets are not re-translated but kept at the historical or original rate.

Dissecting the term “Monetary Assets”

Monetary assets are assets whose values do not fluctuate in dollar terms and that carry an obligation to deliver a certain amount of currency units. In short, they are static. However, their purchasing power may change upon a change in the prices of goods and services in general. A monetary asset cannot become obsolete or gain more value (appreciate) in the market over time.

Assets that can either be Monetary or Non-Monetary

Prepayments or advance payments can either be monetary or non-monetary, based on a contract with a third party (the party to which payment was made). If as per the contract, the pre-paid amount is non-refundable (which it usually is) or if there is no contract and the probability of getting the amount back is very low, then it should be treated as a non-monetary asset.

Investments in preference shares shall be treated as monetary assets if there is a clause in the contract, by virtue of which, the redemption of preference shares has to be undertaken by the issuing entity after a certain time in the future. Otherwise, investments in preference shares will be treated as assets that are non-monetary.

  • aurasolutionltd
  • Aura Solution
e copy.png

Your use of this site signifies that you accept our          Privacy & Cookies                 Terms of Use                        Contact Us                    Global Offices                      Press              Cookies             Data Protection Notice