Palk Corporation has a foreign subsidiary located in a country experiencing high rates of inflation. Information concerning this country's inflation rate experience is given below. The inflation rate that is used in determining if the subsidiary is operating in a highly inflationary economy is

Question

Palk Corporation has a foreign subsidiary located in a country experiencing high rates of inflation. Information concerning this country's inflation rate experience is given below.  The inflation rate that is used in determining if the subsidiary is operating in a highly inflationary economy is

Quizplus · Accepted Answer

According to the chart provided, the cumulative inflation rate over the three-year period is 353.85%. However, since IAS 29 only requires consideration of the inflation rate in the current year and the preceding year, we need to focus on those two years. In the current year, the inflation rate is 49.16%. In the preceding year, the inflation rate was 61.54%. Using the formula provided in IAS 29, we can calculate the cumulative inflation rate over the two-year period to be 133.33%. Since this exceeds the threshold of 100%, the subsidiary is operating in a highly inflationary economy.

Palk Corporation Has a Foreign Subsidiary Located in a Country