Last update 19/08/2019
Units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency.
For translation of the amounts in foreign currency to your functional currency, the standard IAS 21 states that you should re-calculate all items after initial recognition using exchange rate based on characteristics of the specific item.
More specifically:
- For all monetary items in foreign currency – use closing exchange rate at the reporting date;
- For all non-monetary items in foreign currency carried at historical cost – use the historical exchange rate (at the date of transaction – thus, you keep non-monetary asset at historical rate with no recalculation);
- For all non-monetary items in foreign currency carried at fair value – use the exchange rate at the date when fair value was determined.
| Monetary items | Non-monetary items |
| Trade receivables | Property, plant and equipment |
| Trade payables | Inventories |
| Pensions to be paid in cash | Some prepayments |
| Investments in debt securities | Intangible assets and goodwill |
| Other receivables settled in cash | Investments in associates |
| Current tax receivable or payable |
Advances paid or received
You need to assess the character and substance of every advance paid or received carefully, because some advances can be monetary and some of them can be non-monetary.
Deferred taxation
Currently, this is a little bit unclear in the standards.
IAS 12 Income Taxes indirectly indicates that the deferred tax assets and liabilities are monetary items, because it notes that the exchange rate differences on deferred foreign tax liabilities or assets are recognized in the statement of comprehensive income (IAS 12 78).
Investments in preference shares are another item that requires our careful judgment.
More specifically, you should assess the rights attaching to the shares. In fact, IFRS 9 says that investments in equity instruments are non-monetary items.
It means that if terms of the preference shares lead to the shares classified as equity instrument, then they are non-monetary.
For example, the share that does NOT specify any mandatory redemption by the issuer at some future date would represent an equity instrument (or at least an equity component of a compound financial instrument).
On the other hand, if terms of the preference shares lead to the shares being classified as a financial liability, then it should be treated as a monetary item.
For example, the share that DOES specify mandatory redemption by the issuer at some future date would represent a liability.
Some companies issue their share capital in a foreign currency.
However, neither IAS 21, nor IFRS 9 specify whether the share capital in a foreign currency is monetary or non-monetary item and how to treat the difference.
In practice, the ordinary share capital is viewed as non-monetary item and maintained at the historical rates. The reason is that its retranslation to closing rate does not affect the cash flows of the company.
Monetary items
Monetary items
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