Which of the following statements is incorrect regarding the lower-of-cost-or-market rule?

IAS 10 Events After The Reporting Period contains requirements for when events after the end of the reporting period should be adjusted in the financial statements. Adjusting events are those providing evidence of conditions existing at the end of the reporting period, whereas non-adjusting events are indicative of conditions arising after the reporting period (the latter being disclosed where material).

IAS 10 was reissued in December 2003 and applies to annual periods beginning on or after 1 January 2005.

• None

Event after the reporting period: An event, which could be favourable or unfavourable, that occurs between the end of the reporting period and the date that the financial statements are authorised for issue. [IAS 10.3]

Adjusting event: An event after the reporting period that provides further evidence of conditions that existed at the end of the reporting period, including an event that indicates that the going concern assumption in relation to the whole or part of the enterprise is not appropriate. [IAS 10.3]

Non-adjusting event: An event after the reporting period that is indicative of a condition that arose after the end of the reporting period. [IAS 10.3]

• Adjust financial statements for adjusting events - events after the balance sheet date that provide further evidence of conditions that existed at the end of the reporting period, including events that indicate that the going concern assumption in relation to the whole or part of the enterprise is not appropriate. [IAS 10.8]
• Do not adjust for non-adjusting events - events or conditions that arose after the end of the reporting period. [IAS 10.10]
• If an entity declares dividends after the reporting period, the entity shall not recognise those dividends as a liability at the end of the reporting period. That is a non-adjusting event. [IAS 10.12]

An entity shall not prepare its financial statements on a going concern basis if management determines after the end of the reporting period either that it intends to liquidate the entity or to cease trading, or that it has no realistic alternative but to do so. [IAS 10.14]

Non-adjusting events should be disclosed if they are of such importance that non-disclosure would affect the ability of users to make proper evaluations and decisions. The required disclosure is (a) the nature of the event and (b) an estimate of its financial effect or a statement that a reasonable estimate of the effect cannot be made. [IAS 10.21]

A company should update disclosures that relate to conditions that existed at the end of the reporting period to reflect any new information that it receives after the reporting period about those conditions. [IAS 10.19]

Companies must disclose the date when the financial statements were authorised for issue and who gave that authorisation. If the enterprise's owners or others have the power to amend the financial statements after issuance, the enterprise must disclose that fact. [IAS 10.17]

• IAS 21 superseded SIC-19 Reporting Currency – Measurement and Presentation of Financial Statements under IAS 21 and IAS 29
• IAS 21 superseded SIC-30 Reporting Currency – Translation from Measurement Currency to Presentation Currency
• IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies

• Research project — Financial reporting in high inflationary economies

The objective of IAS 29 is to establish specific standards for entities reporting in the currency of a hyperinflationary economy, so that the financial information provided is meaningful.

The basic principle in IAS 29 is that the financial statements of an entity that reports in the currency of a hyperinflationary economy should be stated in terms of the measuring unit current at the balance sheet date. Comparative figures for prior period(s) should be restated into the same current measuring unit. [IAS 29.8]

Restatements are made by applying a general price index. Items such as monetary items that are already stated at the measuring unit at the balance sheet date are not restated. Other items are restated based on the change in the general price index between the date those items were acquired or incurred and the balance sheet date.

A gain or loss on the net monetary position is included in net income. It should be disclosed separately. [IAS 29.9]

The restated amount of a non-monetary item is reduced, in accordance with appropriate IFRSs, when it exceeds its the recoverable amount. [IAS 29.19]

The Standard does not establish an absolute rate at which hyperinflation is deemed to arise - but allows judgement as to when restatement of financial statements becomes necessary. Characteristics of the economic environment of a country which indicate the existence of hyperinflation include: [IAS 29.3]

• the general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency. Amounts of local currency held are immediately invested to maintain purchasing power;
• the general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may 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
• the cumulative inflation rate over three years approaches, or exceeds, 100%.

IAS 29 describes characteristics that may indicate that an economy is hyperinflationary. However, it concludes that it is a matter of judgement when restatement of financial statements becomes necessary.

When an economy ceases to be hyperinflationary and an entity discontinues the preparation and presentation of financial statements in accordance with IAS 29, it should treat the amounts expressed in the measuring unit current at the end of the previous reporting period as the basis for the carrying amounts in its subsequent financial statements. [IAS 29.38]

• Gain or loss on monetary items [IAS 29.9]
• The fact that financial statements and other prior period data have been restated for changes in the general purchasing power of the reporting currency [IAS 29.39]
• Whether the financial statements are based on an historical cost or current cost approach [IAS 29.39]
• Identity and level of the price index at the balance sheet date and moves during the current and previous reporting period [IAS 29.39]

IAS 29 defines and provides general guidance for assessing whether a particular jurisdiction's economy is hyperinflationary. But the IASB does not identify specific jurisdictions.

There are, however, two reliable sources for this kind of information:

The International Practices Task Force (IPTF) of the Centre for Audit Quality monitors the status of 'highly inflationary' countries. While it monitors the status of highly inflationary countries for the purposes of applying US GAAP, its criteria for identifying such countries are similar to those for identifying 'hyperinflationary economies' under IAS 29. From time to time, the IPTF issues reports of its discussions with SEC staff on the IPTF's recommendations of which countries should be considered highly inflationary, and which countries are on the Task Force's inflation 'watch list'. The newest available IPTF list is dated 25 May 2022. The full list, including exact numbers, detailed explanations of the calculation of the numbers, and observations of the Task Force is available on the CAQ website.

In addition, the International Monetary Fund (IMF) publishes inflation forecasts. Applying the indicators laid out in IAS 29, the following economies should be considered hyperinflationary economies for the purposes of applying IAS 29 and for retranslation of foreign operations in accordance with IAS 21 The Effect of Changes in Foreign Exchange Rates in financial statements for the year ending 31 December 2021:

• Argentina
• Islamic Republic of Iran
• Lebanon
• South Sudan
• Sudan
• Suriname
• Syrian Arab Republic
• Venezuela
• Yemen
• Zimbabwe

What is the lower of cost or market rule?

Which of the following is true about lower of cost or market?

What is the major criticism of the lower of cost or market rule?

What is meant by market in the lower of cost or market rule quizlet?