Deck 26: Hyperinflation

Question 1

How are comprehensive income items restated?

A) By applying a change in the general price index from the date of initial recognition up to the reporting date.
B) By applying a change in the general price index from the beginning statement of financial position up to the reporting date.
C) By applying the difference between the spot rate at the beginning of the period and the spot rate at the end of the period.
D) Comprehensive income items are not restated but reported at historical cost.

Answer 1

By applying a change in the general price index from the date of initial recognition up to the reporting date.

Question 2

An entity is required to measure its financial results and financial position in its functional currency. After restatement, an entity

A) must present its financial position in both the functional currency and reporting currency.
B) can present its financial statements in any currency.
C) must present its financial results in the functional currency but can present its financial position in any currency.
D) can present its statement of financial position and financial results in pre-hyperinflationary currency units.

Answer 2

can present its financial statements in any currency.

Question 3

Which of the following is not a characteristic that indicates the existence of hyperinflation?

A) Prices are quoted or regarded in terms of a relatively stable foreign currency.
B) Prices for sales and purchases on credit include an amount for the expected loss of purchasing power during the credit period, even if the period is short.
C) Interest rates, wages, and prices are linked to a price index.
D) The cumulative inflation rate over a three-year period is close to 50% or higher.

Answer 3

The cumulative inflation rate over a three-year period is close to 50% or higher.

Question 4

What is the procedure required for the restatement of monetary assets and monetary liabilities in historical cost financial statements?

A) Monetary assets and monetary liabilities are restated by applying the change in the general price index.
B) Monetary assets and monetary liabilities are restated in the entity's reporting currency.
C) Monetary assets and monetary liabilities are not restated because they are already expressed in terms of the measuring unit current at the end of the reporting period
D) Monetary assets and monetary liabilities are restated by applying the difference between the spot rate at the beginning of the period and the spot rate at the end of the period.

Question 5

What is the procedure required for the restatement of non-monetary items that are carried at amounts current at the end of the reporting period (e.g., net realizable value and fair value)?

A) Non-monetary items are restated by applying the change in the general price index.
B) Non-monetary items are restated in the entity's reporting currency.
C) Non-monetary items are not restated because they are already expressed in terms of the measuring unit current at the end of the reporting period
D) Non-monetary items are restated by applying the difference between the spot rate at the beginning of the period and the spot rate at the end of the period.

Question 6

When the functional currency of an entity is the currency of a hyperinflationary economy, the financial statements need to be expressed in units of the functional currency current at the end of the reporting period.

Question 7

Restatement to current functional currency units is made using the change in a general price index.

Question 8

Monetary assets and monetary liabilities are not restated because they are already expressed in terms of current units of currency at the end of the reporting period.

Question 9

Assets and liabilities linked by agreement to changes in prices, such as index-linked bonds and loans, are adjusted according to the agreement to establish the carrying value at the end of the reporting period.

Question 10

Non-monetary assets and non-monetary liabilities that are not expressed in current units of currency are restated by applying the change in a general price index from the date of acquisition to the end of the reporting period.

Question 11

An entity is not required to disclose that the financial statements have been restated in accordance with IAS 29.

Question 12

Venuti Entity (VE) began operations on January 1, 20X7, when its owner contributed $2,000,000. During 20X7, VE used $500,000 cash to invest in equity instruments and paid $1,000,000 for a plot of land. The remaining cash was left in a bank account throughout the year. AE did not enter into any other transactions. The investments in equity instruments earned a 20% return during the year.
In 20X7 the general price level rose in the primary economic environment in which VE operates by 60% (i.e., the general price index rose from 100 to 160 in 20X7), meeting the definition as a hyperinflationary economy.
What is the effect of hyperinflation on AE's assets at December 31, 20X7?

Question 13

Define functional currency.