Chapter 9 - Hyperinflationary Economies

Question 1

What standard deals with hyperinflationary economies?

Answer 1

IAS 29

Question 2

What are the 2 types of price changes referred to in IAS 29?

Answer 2

• General inflation (power of money)
• Specific inflation in specific goods

IAS 29 only deals with general inflation.

Question 3

Which entities do IAS 29 apply to?

Answer 3

Those entities whose functional currency is that of a hyperinflationary economy.

Question 4

Does IAS 29 have an absolute rate at which hyperinflation is deemed to arise?

Answer 4

No.

Only guidance in IAS 29 is a cumulative inflation rate over 3 years approaching - or exceeding - 100%.

It is a matter of judgement when restatement under IAS 29 becomes necessary.

Question 5

How should financial statements be restated under IAS 29?

Answer 5

All values initially measured at an earlier date needs to be restated by reference to the change in general price index between the date of initial measurement and the end of the reporting period.

Applies to both current year and to comparative information.

Question 6

Under IAS 29, for hyperinflationary financial statements being restated, is it important to distinguish between non-monetary and monetary items?

Answer 6

Yes, for the restatement of the balance sheet.

Non-monetary (e.g. PPE & goodwill) are adjusted using a general price index.

Monetary items are not adjusted as they are already carried at amounts that are current at the end of the reporting period.

Question 7

How should the P&L / SOCI be treated when IAS 29 applies?

Answer 7

All amounts should be restated by applying the change in the general price index from the dates when the items of income / expenditure were initially recorded to the end of the income period.

Question 8

What happens to gains / losses arising on restatement under IAS 29?

Answer 8

For monetary assets, the gain or loss on the net monetary position should be included in the profit or loss for the period.