In times of high inflation, which can be considered more than one digit, the effects of inflation on equity must be recognized and the Stockholders' Equity, motivated by the loss of the purchasing power of money, must be updated, changing the valuation method to a historical cost in terms of the purchasing power of money, as of the date of the Financial Statements.
Stockholders' Equity is a non-monetary item that produces a loss due to exposure to inflation that must be recognized in the results for the year.
The registration to adjust the Stockholders' Equity accounts is carried out in complementary accounts without mixing the historical cost with the accounts maintained by the Update for inflation.
The accounts for Accounting Update are called:
- Capital update. Accumulated monetary effect. Result from holding non-monetary assets. Excess or insufficiency in Stockholders' Capital Update.
The accounts have auxiliaries to control the amounts for each concept of Stockholders' Equity.
Capital update.
Stockholders' Equity is updated through adjustment methods for changes in the General Price level.
This method is carried out by applying the factor derived from the Consumer Price Indices, to the corresponding historical costs according to age, of Stockholders' Equity, thus updating the historical cost of pesos of purchasing power at the date of the Financial Statements..
When the financial information is updated for the first time, it is necessary to separate the results of the current year from the results of previous years, for this it is necessary to update the initial balances of the year.
The Capital Update G / L account has the following movements:
Capital update.
| Fees | Fertilizers |
| It is charged for the Update amount of the accumulated loss account. | It is paid for the amount of the Update of the capital accounts with a credit balance. |
| Adjustments for reductions of the capital accounts of credit balance. | Adjustments for reductions in the accumulated loss account. |
| For the Capitalization |
This account is Complementary Capital and Stockholders' Equity, its nature is Creditor, its amount can be reclassified for Presentation purposes in the Financial Statements, in the Profits Update.
Cumulative effect.
When the financial information is updated for the first time, the results of previous years are separated, updating the balances of the year and its result is recorded in this account that is part of the Stockholders' Equity and generally has no movements in time.
The account has the following movements:
Accumulated monetary effects.
| Fees | Fertilizers |
| The initial update of the non-monetary items of Asset is loaded. (Depreciation and amortization) | The initial update of non-monetary items of the Asset is paid, mainly Inventory, Property, Machinery and Equipment. |
| Initial update of non-monetary items of Liabilities and Deferred Credit. | |
| Initial update of the Capital Stock and Retained Earnings. |
The account can be of debtor or creditor nature, if its balance is debtor, it represents the Patrimony of an economic entity that has been eroded in previous years by effects of the loss of value, of the purchasing power of money.
If your balance is a creditor, it represents that the Estate has retained its purchasing power measured through the INPC (National Consumer Price Index) and has an excess.
In the Statement of Financial Position this account is presented as part of a concept called: “Excess or Insufficiency in Capital Update”, which is integrated with the Result from Holding Non-Monetary Assets account and the balance of the transitory account Correction for Restatement.
Results for holding non-monetary assets (retam).
This account has the following movements:
| Fees | Fertilizers. |
| Lower valuation of assets (Inventory, Property, Machinery and Equipment) is charged through Replacement Costs in relation to those obtained by the Adjustment Method for changes in the General Price Level. | Higher valuation of Assets is paid (Inventory, Real Estate, Machinery and Equipment). Through Replacement Costs in relation to those obtained by the Adjustment Method for changes in the General Price Level. |
| Favorable adjustments in the Costs and Expenses of the period originated by a decrease in the valuation to Replacement Costs of the Inventory, Real Estate and Machinery and equipment. | Unfavorable adjustments to the Costs and expenses of the period originated by an increase in the valuation at replacement cost of Inventories, Real Estate, Machinery and Equipment. |
| Capitalization. |
The account may be debtor or creditor in nature, if the balance is debtor it represents a loss and if its balance is creditor it represents a gain for Non-monetary Retention.
The Result for Holding of Non-Monetary Assets (RETAM) is presented in the Financial Statement as part of a concept called Excess or Insufficiency in Capital Update that is integrated with the Accumulated Monetary Effect Account and the balance of the transitory account Correction for Restatement.
Excess or insufficient updating of stockholders' equity.
This account is used to record the balance of the transitory account Correction for Restatement that may have a debit or creditor balance and is produced by the different updating factors that are applied to non-monetary items, in relation to the factors applied to monetary items.
The net value of the monetary concepts is equal to the net value of the non-monetary concepts, it is a reciprocal of another and when applying different factors to the items that comprise them, the difference that represents the balance of this transitory account is produced.
For the purposes of presenting the information in the Statement of Financial Position, the following results must be added to this item:
Add:
- Accumulated result for monetary position. Result for holding non-monetary assets. Balance of the account excess or insufficiency in the update of stockholders' equity.
With the above figure, a Net Update Result is obtained, which must be presented in a line in the Statement of Financial Position.
For this, it is necessary to reclassify the balance of the first 2 accounts going to the Excess or Insufficiency account in the Accounting Update.
Another option is that this G / L account be used to obtain in the accounting books the Net Result of the Update that represents the Excess or Insufficiency in the Update of Stockholders' Equity.
In this case, instead of reclassifying the balances of the previous accounts, their balances are transferred, leaving them settled, controlling their concepts through subaccounts.
In this way our account would be integrated as follows:
Excess or insufficient updating of stockholders' equity.
| Fees. | Fertilizers |
| Sub-accounts: Accumulated result by monetary position. | |
| Result from Holding of Non-Monetary Assets. | |
| Results of the transitory account. |
Excess or insufficient updating of stockholders' equity.
The balance of this account is debtor represents an insufficiency of update (Loss), if the balance is creditor it represents an Excess or Sufficiency of Update (Profit).
Accounting entry of the accounts: accumulated monetary effect and capital update:
| Concept | Partial | Should | To have |
| Accumulated Monetary Effect. | xxx | ||
| Stockholders' equity. | Xxx | ||
| Update of Stockholders' Equity. | Xxx | ||
| Social capital. | Xxx | ||
| Contributions for future capital increases. | Xxx | ||
| Legal Reserve. | xxx | ||
| Acumulated utilities. | Xxx | ||
| = Result of the initial Accumulation of Stockholders' Equity under the Adjustment method for changes in the General Price Level. |
Example:
| CONCEPT | HISTORICAL COST. | UPDATED FIGURES. | UPDATE DIFFERENCES. |
| Initial Stock Capital. | |||
| Stockholders' equity. | 600,000 | 900,000 | 300,000 |
| Contributions for future capital increases. | 30,000 | 30,000 | ---- |
| Legal Reserve. | 30,000 | 40,000 | 10,000 |
| Acumulated utilities. | 100,000 | 124,000 | 24,000 |
Correction for restatement.
The results of the Update determined through the adjustment method for changes in the general price level, are recorded in a transitory account whose balance represents an Excess or a Deficiency in the Re-expression.
The balance of the transitory account occurs due to the difference between the update factors applied to the non-monetary items in relation to the factors applied to the monetary items.
The transitory account is called Correction for Restatement and its balance can be debtor or creditor.
If it is a debtor it represents an insufficiency of update (loss), if it is a creditor it represents an excess of update (profit).
The balance of the restatement account must be transferred to Stockholders' Equity as an Excess or an Insufficient update.
The update is registered through a temporary account called Re-expression Correction.
It is transitory because it is used to determine the result of the Update and its balance must be transferred to Stockholders' Equity as an excess or insufficiency in the update, thus leaving the account settled.
The account has the following movements in numbers:
Correction for restatement.
| Fees. | Fertilizers. |
| Updating of non-monetary items complementary to Assets is charged (Depreciation and amortization) | For the Update of non-monetary items of the Asset. |
| Update of non-monetary items of Deferred Liabilities and Credits. | Update of results. |
| Update of Results. | Record of the monetary profit for the period. |
| Update of the Capital Stock and retained earnings. | Transfer of the balance to Stockholders' Equity as a Failure to Update. |
| Record of monetary loss for the period. | |
| Transfer of the balance of the period to Stockholders' Equity as an Excess in the Update. |
The account is debtor and creditor in nature because it may have a debit or credit balance.
If your balance is debtor, there is an update deficiency and if you are a creditor, it reflects an efficiency or excess of the update.
When the account is settled, it is not presented in the Financial Information.
