Foreign Currency and Hyperinflationary Economies Flashcards

Under IAS 29, which quantitative characteristic most strongly indicates that an economy is hyperinflationary?

Answer: The cumulative inflation rate over three years approaches or exceeds 100%

IAS 29 identifies a cumulative inflation rate approaching or exceeding 100% over three years as the key quantitative indicator of hyperinflation.

Under IAS 29, how are non-monetary assets measured at historical cost restated in the financial statements of an entity in a hyperinflationary economy?

Answer: Restated by applying a general price index from the acquisition date to the reporting date

IAS 29 requires non-monetary items at historical cost to be restated using a general price index to express them in the measuring unit current at the reporting date.

Under IAS 29, why are monetary items NOT restated at the reporting date?

Answer: Because monetary items are already expressed in the measuring unit current at the reporting date

Monetary items are already expressed in current monetary units at the reporting date and therefore require no restatement under IAS 29.

A foreign subsidiary operates in a hyperinflationary economy. What is the correct sequence when preparing consolidated financial statements?

Answer: Restate the subsidiary's financial statements per IAS 29, then translate the restated figures at the closing rate under IAS 21

The correct sequence is to first restate the subsidiary's statements per IAS 29 and then translate the restated amounts at the closing rate in accordance with IAS 21.

Under IAS 29, the gain or loss arising on an entity's net monetary position in a hyperinflationary economy is recognized:

Answer: In profit or loss for the period

IAS 29 requires the gain or loss on the net monetary position to be included in profit or loss and separately disclosed.

When restating property, plant and equipment under IAS 29, which measure is applied?

Answer: A general price index applied from the date of acquisition (or last revaluation) to the reporting date

IAS 29 requires PPE to be restated using a general price index from the date of acquisition or last revaluation to the reporting date to reflect changes in general purchasing power.

An entity's economy ceases to be hyperinflationary. Under IAS 29, how are the restated figures from the prior period treated in subsequent financial statements?

Answer: Used as the basis for the historical cost amounts in all subsequent financial statements

When hyperinflation ceases, IAS 29 states that the amounts expressed in the measuring unit at the end of the previous reporting period become the new historical cost basis for subsequent periods.