Nonmonetary assets and liabilities

Nonmonetary assets and liabilities

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From equation (4) and equation (5) we also know that the amount of net assets can be affected by several sources which are (1) the monetary and nonmonetary classifications [M, N, L, O], (2) increase in the prices of specific nonmonetary assets and liabilities position [[N.sup.0.sub.i][P.sub.i] - [O.sup.0.sub.i] [P.sub.i]], and (3) scope of revaluation of assets and liabilities [M, N, L, O].
The difficulty in defining monetary and nonmonetary assets and liabilities arises because the distinction between the two classifications was arbitrarily set.
When a country becomes highly inflationary, the accounting is as follows: Nonmonetary assets and liabilities (for example, fixed assets and the related accumulated depreciation) are remeasured from the local currency to the reporting currency (the new functional currency) at historical exchange rates.
The difference between current and historical rate translations of nonmonetary assets and liabilities will continue to be a temprorary difference on which deferred foreign taxes must be provided.