CHAPTER 29 HYPERINFLATION TECHNICAL KNOWLEDGE To know the characteristi. ‘ 7 cs that may indicate hyperinflationary economy, To know. the requirement for financial reporting in a hyperinflationary economy. To understand constant peso accounting. To distinguish between monetary items and nonmonetary items. To know the procedures for restating historical financial statements in terms of current price level. To determine gain or loss on purchasing power. 671HYPERINFLATION rting in a hyperinflationary econo PAS 29 on financial repo! psolute rate at which hyperinflation does not establish an @ is deemed to arise. Hyperinflation is a matter of. ‘judgment. i ion is indi 5 Yr istics of the econom; erinflation is indicated by characteris economia eo tsoament of a country which include but are not limited ) the following: lation prefers to keep its wealth in a. The general popul: A 7 ets or in relatively stable foreign nonmonetary ass currency. Accordingly, amounts held in local currency are immediately invested in nonmonetary assets or stable foreign currency to maintain purchasing power. b. The general population regards monetary amounts not in terms of local currency but in terms of a relatively stable foreign currency. c. Sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period even if the period is short. d, Interest rates, wages and prices are linked to a price index. e. Ae cumulative rate over 3 years is approaching or exceeds 0%. Although PAS 29 sets out the characteristics that may indicate hyperinglationary economy, it also states that judgment may e used in determining wheth ial stltohients is seaaina ler restatement of financl 672Financial Yeporting in a L PAS 29, Paragraph 8, provi an entity that reports j t economy, whether the or a current cost appre measuring unit current Presentation of the inform supplement to yn; permitted, ——— inflationary economy ides that the financial statements of © currency of a hyperinflationary ased on historical cost approach » shall be stated in terms of the at the end of reporting period. ation required under PAS 29 as a restated financial statements is not by ciple ep inaneial statements of an entity that reports by means of constant ypetinflationary economy is accomplished _ ‘Pe80 accounting and current cost accounting. Constant peso accoun Constant peso accounting iting is the restatement of conventional or justorteg! financial statements in terms of the current purchasing power of the peso through the use of index number. Constant peso accounting also known as purchasing power or price level accounting. ‘The traditional concept of pi on historical cost is known Monetary items reparing financial statements based as nominal peso accounting. PAS 21 defines monetary items as money held and assets and liabilities to be received or paid in fixed or determinable amount of money. The essential feature of a monetary item is a right to receive or an obligation to deliver a fixed or determinable amount of money, In simple language, monetary items refer to cash and assets that represent a fixed amount of pesos to be received, or obligations that represent a fixed amount of pesos to be paid. Monetary assets and liabilities remain the same regardless of ‘he change in the general price level. 673Nonmonetary items ms, by the P’ items that cam rocess of exclusion, may Nonmonetary ite not be classified as monetary defined as those i : alled nonmonetary ecause their pe he financial statements differ from 7 ly realizable or payable. These items are 80 U amounts reported in tl amounts that are ultimatel The essential feature ofa nonmonetary item is the absence of a right to receive or an obligation to deliver a fixed o determinable amount of money. What items are restated? Only nonmonetary items are restated when preparing constant peso financial statements. Monetary items are not restated anymore because they are automatically stated in terms of current purchasing power of the peso. The objective of constant peso accounting is to report elements of the financial statements in terms of pesos that have the same purchasing power. Formula for restatement Index number at end of reporting period «Historical cost Index number on acquisition date For example, a land was acquired on January 1, 2019 for P500,000 when the index number is 125. If the land is to be restated on December 31, 2020 when the index number iis 300, the restated amount is computed 4 follows: Restated amount = 300/125 x P500,000 =. P1,200,000 674y OO —_— ! Examples of mo, netary and nonmonetary items Following is a list 7 with thei of statement of financial position items ar Proper ifieati, Per classification ag monetary or nonmonetary- Cash Monetary Nonmonetary Boancial a held for trading * ‘nancial assets at fai other comprehensive wi trough Financial assets at amortized cost Accountsand notes receivable : lowance for do Ae aece doubtful accountsand notes > balers toemployees a Prepaid insurance, tax¢ eit Prepaid interest es, advertising, rent x Receivables under finance lease Long boo Tecetvables special deposits which are re Flos kigeenereomeel Consisting of financial assets at fair value x Consisting ofbonds at amortizedcost x Property, plant and equipment Accumulated depreciation Cash'surrender value i! Advances to suppliers . Discounton bonds payable . Intangible assets Goodwill Accounts and notes payable Accrued expenses Cash dividend payable Liability for refundable deposits Advances from customers x ‘Accrued losses on firm purchase commitments Bondspayable Obligations under finance lease Pension benefits to be paid in cash Provisions that are to be settled in cash Deferred revenue Noneontoling interest Preference share capi Ordinary share capital ae . ‘Retained earnings’ is residual and should not be classified as either monetary ‘ornonmonetary. iz x MM me “mM HOM Perry HOM MM 675 i , :General price index ment is known as generg) 4 tel The index number used for restal Sentral ng Pilipinas, price index constructed by the Bangko index is desi Ih the overall } dex is designed to show how muc’ level A ee in aie occa has changed over time. eneral price index means that the i in the eae Cachcung pole of money has decreased. This is popularly known as inflation. ‘A decrease in the general price index means that the ‘purchasing ‘power of money hag increased. This is known as deflation. Specific price index A specific price index is the change in the price of a specific good or service, such as food, clothing and car. Specific price change occurs primarily because of change in supply and demand for a particular good or service. The law of supply and demand is in operation in the case of a specific price change. For example, if there is an increase in demand for cars, then the specific price of cars will tend to increase. The specific price of a good or service may change at a different rate and even in the opposite direction from the general price change in the overall economy. Gain or loss on purchasing power cee means the goods and services that money can uy. In a period of inflation or rising prices, a purchasing power loss is incurred on monetary assets and i in is realized on monetary Labilities, "| PTSBASiNE Power #2 In a period of deflation or falling prices, a purchasing powe gain is realized on mone i purchasing . Joss is incurred on Pasa Unblities = “ 676jilustration eraon deposits P100,099;, . tte Aho current year to eons savings account atthe beginning Five years later, having withdrawn ither the principal nor of O00, tae gepositor owns a passbook hat shows a balance of Fall at 836 for Sroets: S™AUNE of 100,000 compounde Obviously, there is a monetary j th depositor now has more ene than ke of Ede because the But economically speaking, is there Bain or toss? If during the five-year period, the price level approximately increased 100%, then to maintain the purchasing power of the P100,000in the current year, the depositor should have P200,000 after 6 years. But the depositor has only P146,930. Thus, there is an economic Joss of P53,070. Clearly, when prices increase, the value of money decreases, Another illustration Aperson borrows at the beginning of the current year P100,000 payable after 5 years at 7% interest compounded annually. The table of amounts shows that the value of the P100,000 after 6 years at 7% compounded annually is P140,260. This is, therefore, the amount to be paid by the debtor. If during the five-year period the price level increased by approximately 100%, then the creditor should receive at least 200,000 to maintain the purchasing power of the P100,000 in the current year. But he receives only P140,260. Thus, there is an economic loss on the part of the creditor, and &n economic gain on the part of the debtor, in the amount of P59,740. Clearly, when prices increase, it is more advantageous to incur 1 fixed obligations rather than hold monetary assets, 677,Procedures for restatement 1. The items in the financial statements are classified into monetary and nonmonetary. i -estated because these are alr; 2. Monetary items are not resta t ead capresued in terms of the monetary unit current at the end of reporting period. 3. Nonmonetary items are restated by applying the generg} price index from the date of acquisition to the end of reporting period. Some nonmonetary items are carrie at amounts current at end of reporting period, such ag net realizable value and fair value. 4, Some nonmonetary items are carried at amount current at date ‘other than acquisition date, for example, property, plant and equipment are revalued. In such case, the carrying amounts are restated from the date of revaluation. 5. Ailitems in the income statement are restated by applying the change in the general price index from the dates when the items of income aud expenses were initially recorded. However, for practical purposes, the average index may be used. 6. The general purchasing power gain or loss is computed. This pertains only to monetary items. The gain or loss on purchasing power is included in profit or loss. 7 The restated amount of property, plant and equipment, goodwill and other intangible asset is reduced when it exceeds the recoverable amount. 8. An elis revaluation surplus recognized previously is inated. 9. Retained earnings would be the balancing figure in the restated statement financial position. ene 10. When comparative statements are prepared, the monetary items of the preceding year are expressed in terms © index number at the end of the current year. | 678 Vanaf eee eee ear tete es filustration pxemplar Company 5 statements based on faces the following financial torical cost: State nEMPLAR COMPANY ‘ment of Financial Position December 31, 2020 Assets 2020 2019 Cash : ‘Accounts receivable eapeea coo ‘allowance for doubtful accounts (20,000) (30,000) Inventories 300,000 350,000 Land 200,000 200,000 Building _ 600,000 600,000 Accumulated depreciation ( 240,000) ( 200,000) Equipment a 800,000 800,000 ‘Accumulated depreciation (320,000) (_ 240,000) 2,370,000 2,330,000 Liabilities and Shareholders’ Equity Accounts payable 250,000 300,000 Bonds payable 500,000 500,000 Share capital : 1,000,000 1,000,000 Retained earnings 620,000 530,000 2,370,000 2,330,000 679EXEMPLAR COMPANY Statement of Income and Retained Earnings Year ended December 31, 2020 Sales 3,000,000 Cost of goods sold: 350,000 1 , oe 1,900,000 Goods available for sale ae ate) He Inventory, December 31 (_ 300,000) 1,950,000 i 1,080,000. Gross income 5 Expenses: Se Distribution and administrative expenses 600,000 Depreciation — building 40,000 Depreciation - equipment 80,000 Interest expense 30,000 750,000 Income before income tax 300,000 Income before income tax 300,000 Less: Income tax 76,000 Netincome : 225,000 Retained earnings, January 1 530,000 Total ; 785,000 Less: Dividends paid on July 1 135,000 Retained earnings, December 31 620,000 The price index numbers prevailing at the date various assets and equities arose are as follows: Date Item . Index number January 1,2014 Share capital 100 January 11,2014 Land ~ 100 January 1, 2014 Building 100 January 11,2016 Equipment 110 duly 1, 2020 Dividends - 150 December 31, 2020 Interest 160 680additional information | Prices rose evenly and %* General price leve) ae index numbers expressing the ges were: January 1 , 2019 December 31, 2019 io ecember 31, 2929 160 Average for ' 2019 135 Average for 2020 150 id purch: p, Sales and p ‘aSes were made and expenses other than depreciation were incurred evenly. ? Inventories were reported i vert oo! ed at cost using FIFO and average index numbers for the year are applicable in restating inventories. The following is the restatement of the statement of financial position and income statement. Cash Cash on December 31, 2020 would remain at 450,000 Cash on December 31, 2019 should be restated in terms of the December 31, 2020 price level because a comparative statement of financial position is prepared. The amount should be (400,000 x 160/140) 457,143 Accounts receivable Balance on December 31, 2020, no change 600,000 Balance on December 31, 2019 (450,000 x 160/ 140) 614,286 Allowance for doubtful accounts 20,000 December 31, 2020, the same December 31, 2019 (30,000 x 160/140) 34,286 | | hventories The restatement of inventories requires knowledge of the ates of a¢quisition and the historical cost. 681iti ‘IFO method is 7 In the example, it is assumed that the F 8 applieg and average index numbers for the year are applicable i restating inventories. Accordingly, the inventories arg restated as follows: December 31, 2020 (300,000 160/150) 820,009 December 31,2019 (350,000x 160/135) 414815 | Land December 31, 2020 (200,000 160/100) — 820,009 December 31, 2019 (200,000x 160/100) - 320,009 Building December 31, 2020 (600,000x 160/100) 960,000 December 31, 2019 (600,000x 160/100) —_ 960,000 Accumulated depreciation - building December 31, 2020 (240,000x 160/100) 384,000 December 31,2019 (200,000x 160/100) — 320,000 Equipment December 31, 2020 (800,000x 160/110) 1,163,636 December 31,2019 (800,000 160/110) 1,163,636 Accumulated depreciation - equipment December 31, 2020 (320,000x 160/110) 465,453 December 31, 2019 (240,000 160/110) 349,091 Accounts payable December 31, 2020, the same 250,000 December 31, 2019 — (300,000x 160/140) 342,857 Bonds payable December 31, 2020, the same 500,000 December 31, 2019 = (500,000 x 160/140) . 571,429 Retained earnings The tetained earnings balance is the amount needed balance the statement of financial position, It is therefor the residual amount or “balancing” figure. 682- —_ gales Inasmuch as sales are r r, Spread e over the year, the average index for 2000 jg used in converting thi esos. The amount show we to 2020 (3,000,000 x 160 / 150) 3,200,000 purchases The average index for 2020 i used because the purchases ste vade evenly throughout the year, The amount should be (1,900,000) x 160/ 150) 2,026,667 pistribution and administrative expenses The average index for 2020 is al: d (600,000 x 160 / 150) are es 640,000 Depreciation — building 40,000 x 160/100 64,000 Depreciation — equipment 80,000 x 160/110 116,364 Interest expense Same amount as reported because it is paid on December 31, 2020 30,000 Income tax i ‘The income tax is assumed to be incurred evenly throughout the year (75,000 x 160 / 150) 80,000 | Dividends | Since the dividends are paid on July 1, 2020, . | the index on that date is used 144,000 (135,000 x 160 / 150) 683-— 000‘0EE's = LBI'bY6S oo0‘oze's £09'921'E L1Z'8T9 000°0Es T81‘¥6S 00°09 000‘009'T 001/091 000'000'T + 000'009'T 00T/09T —000'000"T 6ZrILG OFL/09T 00°00 000'003 000‘00S LSB'svE OFT /09T —000‘00E o00'0sz 000'0Sz S0S‘9ZT'E , 000'088'S = IST'PhE'S 000‘0Le's (l6o'6vE ) OTT/O9T (O00'OVZ ) (Ga¥'sov ) OLT/O9T (OOO‘OzE ) QENEITT OTT/O9T — 000'008 QE9'EOT'T OTT/O9T- 000'008 (Q00'0ZE ) OOT/O9T (000'00Z ) (OOO'PEE ) OOT/O9T- (OO0'OrZ ) 00T/09T —000'009 000096 ©. 00T/09T - 000'009 o00'0ze —80T /09T ~—_000'00% 000'0ZE OT /09T —000'00% GIS'PIy GET/O9T: 00'0SE 000'0ZE —OST/09T —_000'00E (9gz've- ) OFT/O9T (O0O'0E ) (O00'0s ) (ooo'0z ) QBZFIS OFT/O9T —000'0F 000°009 000'009 EPT'LEh OFT /09T 00°00 o00'osr 000‘0Sr Pewsey uONDUIG [VOMLOISTE, poyeysey UONOVLY —[eoyTOWS THT 610z ‘Le toquisseq 0803 “Le 29qureseq sBuyurue poureyoy, Tendeo areqg eiqeded spuog e[quced eyanos0y Aymbg sr9poyezeys pus sont quoudmbe — uojeperdep payemumsy quemdmbg Burprmq — voHeardep paye~nums0y . Surprmg puey Goqsoqaeany syumoooe nFAqnop 105 soUBMOTTY 9[qearaoax syunacoy ~ seg szossy (sosod guazino 9Z0z ‘18 9qu1990(] Jo'su1193 UT pazeysay) wors{sog [BIOUwULY Jo usMaIEIg eAtEIEdUIOD ANVdWOO0 UV 1d WaAxXa 684Restated’ 3,200,000 3,200,000 414,815 028,667 2,441,482 320,000 2,121,482 1,078,518 640,000 64,000 116,364 30,000 22,190 872,554 205,964 80,000 125,964 612,217 738,181 144,000 En (Restated to Dees’ December 81, 2020 er 81, 2020 current pesos) Historical Fraction gales 3,000,000 160/150 Cost of goods sold: a Inventory, January 1 350,000 160/136 Purphasee 1,800,000 160/150 : —e Goods available forsale 2.950.909 Less: Inventory, Dec, 31 300,000 160/150 Cost of goods sold 1,950,000 Grossincome 1,050,000 Bxpenses: Distribution and administrative expenses 600,000 160/150 Depreciation — building 40,000 160/100 Depreciation — equipment 80,000 160/110 Interest expense 30,000 160/160 Loss on purchasing power - Total expenses 750,000 Income before income tax 300,000 Less: Income tax 75,000 160/150 Netincome 225,000 Retained earnings, Jan. 1 530,000 Total 775,000 less: Dividends paid 135,000 160/150 Retained earnings, Dec. 31 620,000 685 594,181LAR COMPANY Dear Loss on Purchasing Power tatio inal? Year Ended December 31, 2020 tated: Monetary assets, December 31, 2019, res aeaaae as 514,286 Accounts receivable ( ra 286) ° 997 ‘Allowance for doubtful accounts (__ 34,286) 937,143 Monetary liabilities, December 31, 2019, Pe eg Aa aay ‘Accounts payable 571429914 Bonds payable Eee 2286 Net monetary assets, December 31, 2019, restated 22,857 ‘Add: Increase in monetary assets in 2020, restated: Sales 3,200,000 Total 3,222,857 Lese: Decrease in monetary assets in 2020, restated: Purchases 2,026,667 Distribution and administrative expenses 640,000 \ Interest expense 30,000 Income tax 80,000 Dividends 144,000 2,920,667 Net monetary assets, December 31, 2020, restated 302,190 * Monetary assets, December 31, 2020 Cash 450,000 Accounts receivable 600,000 ‘Allowance for doubtful accounts (__ 20,000) 1,030,000 Monetary liabilities, December 31, 2020: ‘Accounts payable 250,000 Bonds payable + 500,000 _ 750,000 Net monetary assets, December 31, 2020, Historical cost 280,000 Net monetary assets, December 31, 2020, Restated (See above) ss 302,190 Loss on purchasing power (22,190) Observe that the computation of gain or loss on purchasing power requires only the comparison of net monetary assels _ at the end of reporting period at historical cost and né monetary assets at the end of reporting period restated 4! current or constant pesos. 686gain oF loss on Purchasing po: wer e net moneta; etary assets at ei at historical cost exceed the net wrobasing power, rent pesos, there is a gain 07 jn the other hand, if oO st are less than the there is loss on purch; nee net monetary assets at historical ~~ Monetary assets at current pesos, ‘asing power. he rule is the reverse for ney monetary liabilities. The Gee a i for mula may be used in computing the “constant peso ‘ary assets at the end of current year: netary assets, beginning, restated xx Less: Monetary liabilities, beginning, restated x Net monetary assets, beginning, restated xe ‘Add: Increase in net monetary assets, restated ES otal ; a Less: Decrease in net monetary assets, restated == Net monetary assets, end, restated = Another illustration On January 1, 2020; an entity had monetary assets of P5,000,000 and monetary liabilities of P3,000,000 and therefore net monetary assets of P2,000,000. During 2020, the entity's monetary inflows and outflows were relatively constant and equal so that it ended the year with the same net monetary assets of P2,000,000. ‘The general price index number was 125 on January 1 and 200 on December 31, 2020. Since there is no change in the net monetary assets, the gain or loss on purchasing power is simply computed as follows: Net monetary assets — December 31, 2020, historical cost —_2,000,000 | Netmonetary assets, December 31, 2020, restated | 000,000 x 200/ 125) (8,200,000) ‘oss on purchasing power 2,200,000) 687Economy ceasing to be hyperinflationary Judgment shall also be exercised whether an economy ig no longer hyperinflationary. The criterion is that whether the cumulative inflation rate drops below 100% in a three-year period. When an economy ceases to be hyperinflationary, an entity shall discontinue the preparation and presentation of financial statements under a condition of hyperinflationary economy. The amounts expressed in the measuring unit current at the end of the previous reporting period shall be the carrying amounts in subsequent financial statements. Disclosures for hyperinflationary financial statements a. The fact that the financial statements have been restated for changes in the general purchasing power of the reporting currency. b. Whether the financial statements are based on historical cost approach or current cost approach. c. The nature and level of the price index at the end of reporting period and the movement in the index during the current and previous reporting period. 688QUESTIONS L Explain 4 general price change, g. Explain a specific Price change. 3, Distinguish inflation and deflation. 4, What is hyperinflation? 5. What are the characteristics of an economic environment indicating hyperinflation? Hid 6. Explain the financial reporting ; ere economy. i Porting in a hyperinflati ‘y 7, What is constant peso accounting? 8, Explain monetary items, 9. Explain nonmonetary items, 10. What is purchasing power? 11. What items are restated in the financial statements” prepared in a hyperinflationary economy? 12. What is the formula for restatement? 13,.What are the procedures for restating financial statements in a hyperinflationary economy? 4. Explain the accounting treatment when an economy ceases to be hyperinflationary. 15. What are the disclosures when financial statements are Prepared in a hyperinflationary economy? 689PROBLEMS Problem 22s1(ACP) Sunflower Cemipany yeport svatement of financial posit ted the following liabilities in ty tion at- year-end: Accounts payable 1,000,009 Accrued expenses : in Bonds payable ,000,009 Finance lease liability 4,000,000 “Unearned revenue [ 300,000 Advances from customers 1,200,000 Estimated warranty liability 200,000 Deferred tax liability 400,000 What: total amount should be classified. as monetary liabilities? a. 4,500,000 b. 8,500,000. c. 9,700,000 d. 8,900,000 Problem 22-2 (AICPA Adapted) Gardenia: Company reported the following assets in the statement of financial position at year-end: * Cash in bank + 2,000,000 Accounts receivable 4,000,000 Tnventory : 1,500,000 Available for sale securities 500,000 Patent 1,000,000 Advances to employees 200,000 Advances to suppheis 400,000 Prepaid expenses 100,000 What total amount should be classified as monetary assets! 6,200,000 a 6,600,000 : 6,700,000 . 17,700,000 BoP 690| @ problem 22-3 (AICPA Adapteg) Dafnees from historia) cecto8 January 1, 2014. Selected on December 31, 2029 were: beseeeeietu trac: euereele hased on Jam and purcha wary 1, 2014 100 qavestment in long-term bonds purchas d oe january 1, 2017 Ce 1,200,000 gong term debt issued on January 1, 2014 1,600,000 all price ind phe general price index was 190 on Ja: 1, 2014, 150 on janvary 1, 2017 and 800 on Decembor 31, 2026. 1, What amount should be reported in a hyperinflationary statement of financial Position for land? ~ 2,400,000 6,000,000 4,800,000 3,000,000 eeose 2, What amount should be reported in a hyperinflationary statement of financial position for investmentin bonds? a, 3,000,000 b. 2,400,000 c. 1,200,000 d. 1,500,000 ' 3. What amount should be reported in a hyperinflationary statement of financial position for long-term debt? a. 4,000,000 b. 3,200,000 ¢. 2,000,000 4. 1,600,000 691Problem 22-4 (IFRS) ing i inflationa: Zeus Company was operating in a hyperinflationary econo, and provided the following statement of financial position 7 December 31, 2020: Property, plant and equipment 900,000 Inventory 2,700,000 Cash 350,000 Share capital issued December 31, 2016 400,009 Noncurrent liabilities 500,000 Current liabilities 700,000 Retained earnings 2,350,000 The general price index had moved on December 31 of each year: 2016-100, 2017-130, 2018-150, 2019-240 and 2020-300, The property, plant and equipment were purchased on December 31, 2018, The noncurrent liabilities were loans raised on December 31, 2019. . 1, What ie the amount of total assets after restatement for hyperinflation? a, 5,150,000 b. 3,960,000 ec. 4,800,000 d, 4,850,000 +2. What is the amount of total liabilities after restatement for hyperinflation? a. 2,400,000 b, ‘1,200,000 c. 1,325,000 d. 1,500,000 3, What is the balance of retained earnings after adjusting * for hyperinflation? 2,350,000 2,750,000 3,550,000 . 2,625,000 Be oP 692saan problem 22-5 (LAA) ville Company provided the following historical incom? at smrement data for 2020; ' 100 salentory —January 1 5,000 Poon 2, 500,000 faventory - December 31 150,000 one 2,000,000 2,000,000 pepreciation ales are earned and expe i throughout the year, pensed: are ie Inventory was acquired during ‘he last week of each year quired on rred evenly Depreciable assets have a 6- i et ooiT. year life and were act The index numbers are 126 on January 1, 2017, 140 on January 1, 2020, and 360 on December 31, 2020, 1. What is the amount of sales after restatement for hyperinflatiion? a. 7,200,000 b, 5,000,000 c. 7,000,000 d. 9,000,000 2, What is the cost of goods sold after restatement for hyperinflation? a, 2,350,000 b, 4,000,000 c, 3,384,000 d. 3,780,000 rating in a hyperinflationary economy, 4. Ifthe entity is ope! Id be reported as net loss? what amount shoul - a, 6,440,000 b, 1,860,000 ¢, 1,944,000 d. 4,824,000‘Problem 22-6. (IAA) : ' e following information for the Ivan Company proyided th current year: 8 Net monetary assets — January 1 3,000 00 Pavthases 1,200,000 Expenses ent ,000 Income-tax Cash dividend paid on December 31 200,000 mses and income tax accrued evenly The sales, purchases, expe Siege urosli0'en January) during the year. The index nw and 140 on December 31. -What is the gain or loss on purchasing power? a. 100,000 gain b. 100,000 loss c. 276,000 loss d. 276,000 gain . Problem 22-7 (LAA) Helen Company provided the following information for the current year: Monetary assets: January 1 250,000 December 31 700,000 _Monetary liabilities: January 1 100,000 December 31 300,000 Increase in net monetary items as restated to constant peso + 8,500,000 Decrease in net monetary items as restated to constant peso 3,000,000 General price index: January 1 125 December 31 300 What is the gain or loss on purchasing power? a. 460,000 gain b., 460,000 loss oo c. 250,000 gain d. 252,000 loss 694OO __————————— problem 22-8 AICPAAdapted) the. beginning of ouprene | Aonetary assets oF PB po geet Gumaméla Company -had 3,000,000. 00 and monetary liabilities of ing the curre; Flog rr isle mrs monn nda ad the year with the saihe ne monetary ese 000000. he index number on gq AY assets of 2,000,000. Fon :. number on December 31 wae nae 1 was 125 and the index 280. at is the gain g; Wrent year?" 19s8:on purchasing power during the a. -2;480,000 gain b. 2,480,000 loss ¢. 3,720,000 gain 4. 3,720,000 loss problem 22-9 (AICPA Adapted) Cherry Company reported that financi ition did not change during the current yoke financial position did no’ The general price index wa: December 31. 's 120 on January 1 and 300 on The entity provided the following statement of financial position on January 1 and December 31: Cash ; 250,000 Accounts receivable 500,000 ‘Trading securities 400,000 Inventory 2,500,000 Land 1,350,000 ; 5,000,000 Accounts payable 1,500,000 Mortgage payable 500,000 Share capital 2,500,000 Retained earnings 500.000 5,000,000 What is the purchasing power gain or loss for the current year? & 1,875,000 gain 4. 1875,000 Toss i 1,275,000 gain : 1,275,000 loss 695Problem 22-10 (IFRS) ° Maximus Company provided the ate equity 7 a hyperinflationary econo! Before restatement After restatement g liabilities and iabiliti 2,000,000 2,500,000 Shave cepa 5,000,000 8,500,000 Revaluation surplus 1,000,000 ? Retained earnings 1,500,001 titiet Total liabilities and equity 9,500,000 26,000,000 1. What is the revaluation surplus after restatement? a. 5,000,000 b. 1,000,000 c. 8,500,000 a. 0 2. What amount should be reported as retained earnings after restatement? 4,000,000 5,000,000 1,500,000 0 Problem 22-11 (AICPA Adapted) Agnes Company reported the following assets in the statement of financial position at year-end: ae op Demand bank deposit. 8,000,000 Net long-term receivables - 2,000,000 Patent and trademark 7 1,000,000 Inventory 2,500,000 Loans to employees 300,000 Deferred tax asset 1,500,000 What total amount should be reported as monetary assets? a. 5,300,000 b. 5,000,000 ¢. 3,000,000 : d. 6,800,000 7 696r problem 22-12 (AICPA Adaptea) axiposa Company repoy, i gna equipment on Decemberatt®, following property, plant yearseauired Percentdepreciated Gost Index number 2018 2019 oo 3,000,000 100 2020 10 2,000,000 125 1,000,000 300 pepreciation is calculated at 10% straight line depreciation j Fi aoe A full year ciation is charged ition. here were no disposals re 2080 in the year of acquisil What amount of depreciation should be included in the-2020 jncome statement adjusted for hyperinflation? a. 1,480,000 1,800,000 , 1,620,000 4. 600,000 Problem 22-13 (AICPA Adapted) - Acacia Company reported the following machinery on December 31, 2020: Cost Accumulated depreciation Acquired in December 2017 4,000,000 1,600,000 Acquired in December 2019 1,000,000 200.000 Index numbers at the end of each year: z 2017 120 2019 125 2020 360 Ina -hyperinflationary statement of financial position Prepared on December 31, 2020, what should be reported as carrying amount of the machinery? & 8,960,000 7,800,000 ® 9,240,000 4 3.200,000 697Problem.22-14 (IFRS) Highland Company provided the following information ne December 31, 2020: Cash 2,000,009 Trade and other receivables” 2,600,000 Property, plant and équipment—net $800,009 ‘Trade and other payables 800,009 Share capital 4,000,009 Revaluation surplus 400,600 Retained earnings 3,000,000 mbers are 112 on January 1, 2017 The general price index nu 3 n December 31, 2019 which is the date of incorporation, 125 o and-280 on December 31, 2020. * The property, plant and equipment were acquired on January 1, 2017 but were revalued on December 31, 2019. 1, What amount should be reported as total assets in a hyperinflationary statement of financial position? a. 14,904,000 b. 13,800,000 ¢. 10,800,000 d. 16,100,000 2. What is the balance of retained earnings after restatement? a, 3,104,000 b. 3,000,000 c. 3,504,000 d. 3,400,000 3. What is the total shareholders’ ity after restatement? r She tact a. 13,104,000 b. 10,000,000 c. 13,504,000 d. 7,000,000 698r problem 22-15 daa) | star Company provided the fo) ition accounts on lowing statement of financial Pet Seember 81, 2020 based on historical Fost: cash i ts receivable 100,000 Aovoun! ; javentory (most recent acquiisition) 1,200,000 ‘ag 400,000 fosumulated depreciation — building 00 Bquipment eee 500,000 cumulated depreciation — equipment 250,000 counts payable © * 600,000 share capital ~ issued January 1, 2015 2,000,000 Retained earnings 1,050,000 Date acquired Index number Land January 1, 2015 100 Building January 1, 2015 100 Equipment — : January 1, 2017 125 End of reporting period December 31, 2020 260 “average index during 2020 240 1. What amount should be reported as total assets after restatement for hyperinflation? a. 3,550,000 b. 6,000,000 c. 6,780,000 d. 5,000,000 2, What is the balance of retained earnings after restatement? | a. 950,000 |b. 200,000 e. 400,000 a. 500,000 . What is the total shareholders' equity after restatement? a. 5,200,000 b. 5,400,000 : , © 6,150,000 ' 4. 5,800,000 699a Problem 22-16 (LAA) Lunar Company provided the following information; 2019 20% : 000,000 . Cash and cash equivalents 3 200,000 soot Inventory 1,500,000 1,409,090 Faipment (120) 4,500,000 4,500,099 wry tary) 1,500,000 2,000, 000 Current liabilities (all monetary, 8/000,000 8.500 Noncurrent liabilities (all monetary) 3000/0004 Share capital "700,000 1.88 0 Retained earnings " 8 000005 Sales . enn Inventory, January 1 | 2,200,000 Purchases Bape 000 Inventory, December 31 1 0,000 Distribution and administrative expenses +700,000 Depreciation 100,000 Income tax 500,000 Cash dividend 360,000 Additional information * -The pertinent index numbers are: January 1, 2018 100 January 1, 2019 100 December 31, 2019 H 120 December 31, 2020 200 * The land and equipment were acquired on January 1, 2018. * The entity was organized on January 1, 2018. * The cash dividend was paid December 31, 2020. Required: 1. Prepare a comparative statement of financial position on December 31, 2020 restated to 2020 price level. 2. Prepare an income statement for 2020 restated to 2020 price level. 8. Compute the gain or loss on purchasing power for 2020. 700 | Lproblem 22-17 Multiple choice (IFRS) inflation ie in: . j, Hyperinflation is indicated by al ofthe following, except , The general . . * nonmonetary anyeation Prefers to keep its wealth in * Interest rate; . + b index. ®, wages and prices are linked to a price c, The cumulative inflati . approaching or exceeds ‘Toon over three years 16 a. of these indicate hyperinflation. All would indicate that hyperinflation exists, except a, The general population regards monetary amounts in terms of xelatively stable foreign currency. b, The cumulative inflation rate over three years is approaching or exceedg 100%, c, Inflation rates have exceeded interest rates in three successive years, d, The general population prefers to keep ita wealth in nonmonetary assets, ~ Which would indicate that hyperinflation exists? | a. Sales on credit are at lower prices than cash sales. | b. Inflation is approaching or exceeds 20% per year. c. Monetary items do not increase in value. d. People prefer to keep their wealth in nonmonetary assets or a stable foreign currency. 4, An entity that wishes to present 'information about the effect of changing prices in a hyperinflationary economy should report this information in a.. The body of the financial statements b, The notes to the financial statements | ¢ Supplementary schedule | d. Management's report to shareholders 5; In a hyperinflationary economy, monetary items a Are not restated because they are already expressed in terms of the measuring unit current at year-end. . Are measured at fair value. oleh © Are restated applying the general price index. 4. Ave restated applying the specific price index. 701 'x . All of the following nancial statements for chan, 86 4 justing fi i! r . Fer purposes of adjusting Monetary items consist of ice level, in the general pri a. Assets and jiabilities whose amounts are fixed by * contract or otherwise 10 terms of pesos b. Assets and liabilities classified as current. c. Cash and cash equivalents plus all receivables, d. Cash, other assets expected to be converted into cash, and current liabilities. are monetary items, except a. Accounts payable b. Accounts receivable c. Administration costs paid in cash d. Loan repayment at face value ;, The financial statements of,an entity that reports in the . currency, of a hyperinflationary economy shall be stated in 10. terms of a. Historical cost b. Current cost c. Fair value d. Measuring unit current at the end of reporting period . The gain or loss on the net monetary position in a hyperinflationary economy shall be included in Profit or loss and separately disclosed Retained earnings Equity Other comprehensive income peop b a hyperinflationary economy, amounts not expressed it e measuring unit current at the e i riod are restated by applying nd of reporting pe! General price index Specific price index Both general price index and specific price index . Either general price index or specific price index Bee 70222- : problem 22-18 Multiple choice (AICPA Adapted) f aie , When of the following is classified as.nonmonetary? a. Allowance for doubtful kb Accumulated depreciation a oe on bonds payable d. Advances to unconsolidated subsidiaries 3, Which of the following is classified as nonmonetary? a. Warranty liability pb, Accrued expense c. Unamortized discount on b d. Refundable deposit — 3, Which of the following is classified as nonmonetary? a. Cash surrender value b. Long-term receivable i. c. Accrued liability on firm purchase commitment d. Inventory : Which of the following is classified as monetary? = a. Goodwill b. Equipment c. Patent . ce d. Allowance for doubtful accounts Purchasing power gain or loss results from a. Monetary asset only b. Monetary liability only c. Both monetary asset and monetary liability’ d. Nonmonetary asset and nonmonetary liability 7036. 10. , During a period of inflation, an acc i i t balance remaj i iod of inflation, an accoun' mi ee a With respect to this account, a purchasing power loss will be recognized if the account is a a. Monetary asset b. Monetary liability c. Nonmonetary asset, d. Nonmonetary liability int balance remaing i is it, a purchasi; constant, With respect to this punt ] sing power gain will be recognized if the account is a a. Monetary liability b. Monetary asset c. Nonmonetary liability d. Nonmonetary asset . During a period of deflation in which a liability account balance remains constant, which of the following occurs? a. A purhasing power loss if the item is a nonmonetary liability. 1 . b. A purchasing power gain if the item is a nonmonetary liability. i : ce. A purchasing power loss if the item is a monetary liability. d. A purchasing power gain if the item is a monetary liability. . During a period.of inflation in which a liability account balance remains constant, which of the following occurs? a. A purchasing power loss if the item is a nonmonetary liability. b. A purchasing power gain if the item is a nonmonetary liability. c« A purchasing power loss if the item is a monetary liability. aA purchasing power gain if the item is a monetary liability. During a period.of deflation, an entity would have the greatest gain in general purchasing power by holding a. Cash : b. Property, plant and equi c. Finance lease liability: moment d. Mortgage payable 704r problem 22-19 (AICPA Adapted) nancial stateme; 1. Finetary unit are (° “Eat are expressed under a stable Constant ‘ a. t Peso financial b. Nominal peso financial statement , Current cost financial statements d.’ Fair value financial statements 1 price 1 i ition i g, A general p: level statem ition 18 prepared and presented in femme EET, a a. The general purchasin, e latest end of reporting poregPower of the peso at ths b. pei general Purchasing power of the peso in the base The avera c. ‘ge general purchasing power of the peso. d, The general purchasing power ofthe peso at the time the financial statements are issued. 3, Which method of reporting ‘attempts to eliminate the effect of the changing value of the peso? a. Discounted net present value of future cash flows _ b. an cost restated for change in the general price eve. c. Replacement cost d. Exit value 4, The restatement of historical peso financial statements to reflect the general price level change results in presenting assets at .a, Lower of cost or net realizable value b. Fair value ec. Cost adjusted for purchasing power change d. Current replacement cost . Which argument in favor of price level adjusted financial statements is not valid? a. Price level financial statements use historical cost. b. Price level financial statements compare uniform pruchasing power among various periods. c. Price level financial statements measure current Value. . 7 d. Price level financial statements measure earnings in terms of a common peso. 705