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Chapter
22 /
Financial Reporting
ill
Hyperinflationary Economies (l AS 29)
2JJ
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.