Economic meaning of transactions as the basis for distinguishing between monetary and non-monetary assets in accounting

Abstract

The economic meaning and characteristics of company assets are outlined: tangible and intangible assets that are monitored and controlled by company owners, results from past events, and used by company owners for profit-making. Therefore, for information needs of company owners, the company assets should be classified by the monetary criterion, enabling them to distinguish between monetary and non-monetary assets. The problem is in the availability of the improved classification criteria. In practice, as there exists a large group of mixed assets which cannot be clearly attributed to monetary or non-monetary ones, business transactions and contract terms need to be considered for classification purposes. Mixed assets should include accounts receivables, current long-term financial investments and short-term promissory notes receivable. If listed mixed assets are repaid in cash or cash equivalents, they should be attributed to monetary assets, and if not repaid in cash, they should be classified as non-monetary assets. The monetary criterion has implications for their inclusion in gross income or gross expenditure, and, consequently, for the company taxation. In view of this, a company should build its accounting policies with analytical subaccounts for separate accounting of monetary and non-monetary assets. The accounts receivable should include synthetic and analytical accounting by maturities and currencies. Promissory notes should be accounted on separate subaccounts as monetary and non-monetary ones. Long-term financial investments should be accounted on the subaccount 142 “Debt securities”, and short-term ones — on the account 35 “Current financial investments”. The above recommended accounting of these mixed assets will allow company owners to have immediate information on their structure, purpose and repayment method. Unlike other publications on this subject, where classification of the mixed assets is recommended by the only one criterion, cash or other-than-cash repayment, the criterion recommended in this article is the feasibility for value measurement of an asset, the nature of business transactions and contract terms.