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FAR - Financial Accounting & Reporting (Forum Locked Forum Locked)
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Subject Topic: Monetary vs. Non-Monetary Items (Topic Closed Topic Closed) Post ReplyPost New Topic
  
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Jan_in_WI
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Joined: 30 Apr 2010
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Posts: 10
Posted: 08 May 2010 at 10:40 | IP Logged  

Hi all,

I'm currently studying to take the FAR portion of the exam in early July, presently using Becker and on the F2 chapter.

Can someone please help me understand the difference between monetary and non-monetary items?

Monetary items are supposed to be assets and liabilities that are "fixed" or denominated in dollars regardless of changes in specific prices/general price level.  Non-monetary items are assets and liabilities that will fluctuate with inflation/deflation. 

So, is inventory generally considered to be non-monetary because it is valued conservatively at lower of cost or market?  And, are intangible assets, such as patents and trademarks fluctuating/non-monetary because they could become impaired/written down, and thus are subject to fluctuations?  I guess I'm not sure I understand the concept of "fluctuating" versus "fixed" in this context, when it comes right down to it.

And, if an account like inventory is considered to be "fluctuating" and thus, non-monetary, what is the logic in remeasuring it at historical rates (versus current rates), in foreign currency financial statements?  Ugghhh!!!

Hoping someone can shed some light on this for me.

Thanks so much,

Jan
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phung80219
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Joined: 01 May 2010
Location: United States
Online Status: Offline
Posts: 93
Posted: 08 May 2010 at 16:15 | IP Logged  

Jan,

From what you have written above, it seems like you have
a pretty good grasp on the topic... at least for exam
purposes!!

Regarding the foreign currency financial statements, my
guess is this:
It is an exception. Historical rate is used only in the
Remeasurement Method ("dysfunction") and not in the
Translation Method. The remeasurement method is used in
instances where there is hyperinflation. Inventory is
valued at lower of cost or market ... and in an
inflationary economy... it is always certain to be valued
at historical cost.

Hope that makes sense. Btw... thank you for your answer
in my other post!

__________________
-Phung
-REG 11/17/2009 Passed
-FAR 07/13/2010 Passed
-AUD 10/04/2010
-BEC 11/30/2010
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