Monetary AssetsDefined along with Examples

Written By:
Adiste Mae

What are Monetary Assets?

Monetary Assets are the only measurable assets that contain a fixed value through an economy’s functional currency like dollars, yen, or euros.

Their value remains fixed even if an economy suffers inflation, even if the implication of inflation is to decrease the currency’s purchasing power.

Dissecting the Term “Monetary Assets”

Monetary assets’ currency value will remain unchanged whatever the situation one economy may experience.

But any change in the price of goods and services may affect the purchasing power of the monetary assets.

Such assets do not depreciate or appreciate over time in the market. 

Characteristics of Monetary Assets

The two main characteristics of Monetary Assets include the following:

Change in Real Terms and Restatement in Financial Statements. 

Change in Real Terms

In terms of currency value, monetary assets will remain fixed whatever the economic situation.

But in real terms, the value of the purchasing power of the monetary assets follows the economic situation of one country.

For example, during inflation, the purchasing power of the dollar currency decreases, but the currency value of yesterday’s monetary asset is the same as today.

An example of a decrease in purchasing power during inflation is when $50 can buy you a week’s worth of groceries the previous month but could only last four days the next month. 

Restatement in Financial Statements

In financial statement reporting, the currency value of monetary assets is unchangeable while non-monetary assets such as land may change in value depending on economic conditions.

If a business has a foreign transaction and follows foreign currency recognition, a restatement of monetary value using the exchange rate at the closing date is still needed for financial statement reporting.

IAS (International Accounting Standards) 21 clearly states that for foreign transactions:

• The recognition of monetary assets must be based on the rate of closing exchange. 
• There is no re-translation of currency for non-monetary assets. Non-monetary assets are recognized at their historical rate. 

Examples of Monetary Assets

• Cash
• Trade Receivables & Other Receivables Recognized for Cash Settlement
• Bank Deposits
• Investment in Debt Capital Market Instrument
• Lease Investments

What are Non-Monetary Assets?

Non-monetary assets are assets that do not have an exact value in terms of currency units.

Their value over time fluctuates and has limited cash conversion.

The liquidity rate of non-monetary assets is also low.

Examples of non-monetary assets are property, plant, and equipment, intangible assets, equity shares, and inventories.

Some companies recognize their equity shares as part of monetary assets.

A non-monetary asset like property, plant and equipment is subject to depreciation.

As such, their value declines over time.

A few factors why non-monetary assets continue to decline are because of changes in supply-demand or technological innovation.

Such factors are irrelevant in terms of monetary asset valuation.

Assets that can Either be Monetary or Non-monetary Assets

The asset valuation of prepayments (advance payments) can either be monetary or non-monetary depending on the stipulation of the contract with the party to whom the payment is made.

It is non-monetary if it stipulated that the advance payment is non-refundable, or if there is no contract signed between the parties and there is little chance of getting the money back.

Investment in Preferred Shares is recognized as a Monetary asset when the issuing entity signifies its intention to redeem such shares in the future.

Otherwise, it is considered a non-monetary asset.