IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

Chapter 22 / Financial Reporting ill Hyperinflationary Economies (l AS 29)

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Practical Insight Wella AG disc loses in its 2002 accounts that the functional currency of foreign subsidiaries is normall y the national currency, as the subsidiaries operate independently. The entity also states that the financial statements of subsidiaries operating in Turkey have been restated to reflect the purchasing power at the balance sheet date. 4.2 If a parent entity operates in a hyperinfl ationary economy but a subsidiary does not, then the parent's results should be restated for hyperinfl ation but the subsidiary's result s need not be re– stated but should comply with lAS 21. 4.3 If a subsidiary is operating in a hyperinfl ationary economy and the parent entity is not, then the parent entity would prepare financial statements using IFRS and the subsidiary would use lAS 29. 5. RESTATEMENT OF FINANCIAL STATEMENTS: BALANCE SHEET 5.1 lAS 29 requires the restatement of financial statements includ ing the cash flow statements and requires the use of a general price index. Practical Insight Turk iye Petrol Rafanerileri published in its 2002 accounts that cumulative inflation in Turkey was 227% for the three years to December 2002. The entity restates comparatives and discloses that it uses the Turkish countryside wholesale prices index. 5.2 It is prefe rable that all entities in the same country use the same index. 5.3 Monetary items are already stated in the measuring unit at the balance sheet dates and are therefore not restated. 5.4 All nonmonetary items are restated using the change in the general price index between the date that those items were acquired and the current balance sheet date, unless they are carried at current values (e.g., net realizable value and market value) at the balance sheet date, in which case they are not restated. 5.5 Any gain or loss on the restatement of nonmonetary items is included in the income state- ment. It is a requirement to disclose this net gain or loss separately. 5.6 The index is applied from the dates on which accounting for hyperinflation was first applica– ble to these items. 5.7 Some nonmonetary assets are carried at values determined at an earlier date than that of the financial statements. Examples are the revaluation of property or equipment. In this case, the carry– ing amounts are restated from the date the assets were revalued. 5.8 The restated amounts are compared to ( I) recoverable amounts in the case of noncurrent as– sets, (2) net realizable value in the case of inventory, (3) market value in the case of current invest– ments, and reduced if they exceed the above values. 5.9 An associate operating in the hyperinflationary economy should have its financial statements restated in accordance with lAS 29. 5.10 Opening owners' equity should be restated using the Standard, but retained earnings and revaluation surplus should not be restated. Any revaluation surplus arising prior to the application of the Standard is eliminated. Restated retained earnings are the balancing figure in the restated balance sheet. 6. INCOME STATEMENT 6.1 The income statement is expressed in terms of the measuring unit at the balance sheet date. Therefore, amounts need to be restated from the dates they were initially recorded.