Historical vs Restated Statements

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Historical vs Restated Statements

• Under inflationary conditions historical costs
  lose their relevance
• Restated financial statements to reflect the
  current prices
• current cost accounting
• general price level adjustments or indexation
• Accounting standards recommend the use of
  indexation because it is more objective

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Monetary and Non-Monetary Items

• necessary to distinguish between the monetary and
  non-monetary items
• Monetary items are those assets and liabilities
  whose TL balances are fixed regardless of changes
  in the general price level
• Non-monetary items have TL values that are not
  fixed in the future, by their nature or by
  contract.

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Monetary Assets
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Non-monetary Assets
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Monetary Liabilities
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Non-monetary Liabilities
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Shareholders Equity
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Effects of Inflation on the Balance Sheet

• Inflation mainly affects the non-monetary items
  that are restated at the current price level
  based on the historical cost and date
• inflation affects the purchasing power of the
  monetary items
• difference between the monetary assets and
  monetary liabilities is called net monetary
  position

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Monetary Position

• If monetary assets are higher than monetary
  liabilities, there is positive net monetary
  position
• if monetary liabilities exceed monetary assets
  than there is negative net monetary position

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Effects of Inflation on the Income Statement

• under inflationary conditions, increased revenue
  may be due to increased sales revenue due to the
  increase in the quantities sold or to price
  increases because of inflation
• another on revenues is the gain on sale of
  property, plant and equipment
• Effects on expenses
• depreciation expense is highly affected by price
  level changes
• cost of goods sold is affected to a considerable
  extent

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Methods to Adjust Accounting Records for the
Effects of Inflation

• general price level adjusted accounting
• current value accounting
• IAS No. 29 and Capital Markets Board accounting
  standards require the financial statements to be
  adjusted in inflationary economies by using the
  general price level indexes effective from 1
  January 2003
• Ministry of Finance also required companies to
  restate their financial statements effective from
  1 January 2004.

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Indications of Hyperinflation

• The cumulative inflation rate over three years
  approaches or exceeds 100,
• Current period price increase exceeds 10,
• The general population prefers to keep its wealth
  in non-monetary assets or in a relatively stable
  foreign currency,
• The general population regards monetary amounts
  not in terms of the local currency but in terms
  of a relatively stable foreign currency. Prices
  may also be quoted in that currency,
• Sales and purchases on credit take place at
  prices that compensate for the expected loss of
  purchasing power during the credit period, even
  if the period is short,
• Interest rates, wages and prices are linked to a
  price index, and
• Other indications of hyperinflationary economy

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General Price Index

• restatement of accounts in the financial
  statements is made using a general price index
• price index to be used in Turkey is the Wholesale
  Price Index announced by State Institute of
  Statistics

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Restatement

• Restatement adjusting the balances to the
  current purchasing power
• Monetary assets and liabilities as of the balance
  sheet date are not restated
• the beginning balances of monetary assets and
  liabilities are restated to the restatement date
  to determine the gain or loss realized due to
  holding monetary assets or liabilities on hand
• The gain or loss on the net monetary position
  (monetary assets monetary liabilities) is
  charged against the revenues, and is disclosed in
  the income statement of the period as a separate
  line item
• non-monetary assets and liabilities should be
  restated with a restatement factor reflecting the
  change in the general price index from the
  acquisition date to the balance sheet date

Restatement factor Index at the balance sheet
date Index at the
acquisition date
e.g a machine was purchased in December 1995,
the cost of that asset should be restated with
the following factor in the balance sheet
prepared as of 31 December 2003
Restatement factor 7.382,1 33,09 223,1
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Illustration Alper A.S.-Balance Sheets
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Illustration Alper A.S.
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Illustration Alper A.S.
AIM restate the financial statements of 2003 at
31 December 2003 price level
First we will restate the 31 December 2002
balance sheet to the price level of 31 December
2002, and then restate it to 31 December 2003
price level
the restatement factor for December 2002 when
December 2003 is the base
Average Restatement Factor for a period
1.0652
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Alper AS- Indexes and Factors
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Alper AS Restate 2002

• identify monetary and non-monetary
  items-Buildings, accumulated depreciation and
  share capital are the non-monetary items that
  need to be restated.
• to determine the restatement factors that would
  be used in the process.
• Restate

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Restatement of Non-monetary items

• Restated Cost of Buildings Cost x restatement
  factor for June 2002
• 100.000 x 1,1627 TL 116.274
• Historical Cost Depreciation Expense for 2002
• TL 100.000 /20 years x 7/12 months TL 2.917
• Accumulated depreciation at the end of 2002 is TL
  2.917.
• Restated Depreciation Expense at December 2002
  prices
• TL 116.274 /20 years x 7/12TL 3.391
• Therefore restated Accumulated Depreciation at
  December 2002 price level is TL 3.391.
• Share capital was invested in May 2002, therefore
  it will adjusted by restating the amount
  invested- TL 120.000 - by May restatement factor
  to December 2002 - 1,1762.
• Restated Share Capital TL 120.000 x 1,1762 TL
  141.140

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Restated 31 December 2002 Balance Sheet at 31
December 2002 price level (Exh.15-4)
Computed as the balancing figure Total Assets
Total Liabilities- Share Capital Retained
Earnings TL 134.383 0 -
TL 141.140 TL (6.757)
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Restatement of 2002 Balance Sheet at December
2003 Prices
Alper A.S. Historical and Restated 31 December
2002 Balance Sheets (TL)
Exh. 15-5
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Restatement of 2003 Financial Statements

• Restatement of Balance Sheet
• Restatement of Inventories
• Restatement of Property Plant and Equipment
• Restatement of Share Capital
• Restatement of Income Statement Items
• Gain or Loss on Net Monetary Position
• Cash Flow Statement

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Restatement of Inventories

• Restate ending inventory December 2003
• Exh. 15-6 A

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Inventory and Purchases Restated at 31 December
2003 Price Level
Exh. 15-6 B
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Restatement of Property Plant and Equipment

• assets that were purchased before 2003, and
  restated on 31 December 2002 are restated at the
  purchasing power at 31 December 2003
• equipment purchased in January 2003 is restated
  with the restatement factor applicable for
  January 2003-base December 2003
• Depreciation expense based on restated values at
  the purchasing power of 31 December 2003

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Restatement of Cost Property Plant and Equipment
Exh.15-7
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Restatement of Accumulated Depreciation-(TL)
Exh.15-8
Computed based on the restated costs at 31
December 2003 prices straight line. E.g.
warehouse TL 79.491/20 Office building was
sold at the end of November 2003 TL
52.994/2011/12
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Book Value of Assets at 31 December 2003
prices-(TL)
Exh.15-9
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Restatement of Share Capital

• restated share capital at December 2002 price
  level is adjusted to the December 2003 purchasing
  power
• If there is an increase in share capital during
  the current year, then the increase in share
  capital during the year is restated by the
  restatement factor applicable for the period when
  cash payment is made by the shareholder

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Share Capital as of 31 December 2003 (restated)
Exh.15- 10
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Restatement of Income Statement Items

• Restatement of Revenues
• Restatement of Expenses
• Average if uniformly distributed
• Monthly rates if varies

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Historical and Restated Revenues at 2003 prices
Exh.15- 11
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Historical and Restated Operating Expenses in
2003
Exh.15- 12
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Gains or losses on disposal of assets

• Alper A.S. sold its office building at the end of
  November 2003 for TL 40.750.

Exh.15- 13
HC TL 40.000/2018/12TL 3.000 RS TL
52.994/2018/12TL 3.974
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NMP
Exh.15- 14
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Alper A.S. Historical and Restated Income
Statements For the year 2003
Exh.15- 15
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Alper A.S. Comparative Balance Sheets
Exh.15- 16
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Alper A.S. Comparative Balance Sheets
Can also be computed as the plug number
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Alper A.S. Historical and Restated Cash Flow
Statements for the year 2003-(TL)
Exh.15- 17
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