Let us understand what is meant a monetary item and a non-monetary item.
Monetary item represents a right to receive or an obligation to deliver a fixed or determinable number of units of a currency.
Some of the examples of a monetary item are investment in debt security in foreign currency classified as amortised cost. This is recorded as a monetary item, because the entity would hold this item till maturity and on maturity would receive the stated maturity amount from the issuer in a pre-determined number of units of the foreign currency.
- Pension benefits payable in cash
- Provisions to be settled in cash
- Dividends payable by an entity recognised as liability
In a non-monetary item, there is no existence of a right to receive or an obligation to pay a fixed or determinable number of units of a currency.
For example, investment in equity shares denominated in foreign currency. This is recorded as a non-monetary item because the entity will be able to get the investment back only by selling the same either in a stock exchange or privately. In other words, the entity has no right to receive a fixed or determinable number of units of such foreign currency from the issuer.
- Pre-paid expenses
- Investment in intangible assets
- Investment in DPE
Now for all these examples, the entity will not be able to receive a fixed or determinable number of units of a specified currency.