De La Salle Araneta University

CBM 4A

RENDOQUE, BIANCA MARIE R.

Financial Reporting in Hyperinflationary Economy

Multiple choice-Theory

1)Under PAS 29, hyperinflation is indicated by characteristics of the economic environment of a country which include all of the following, except

1. 1. The general population prefers  to keep its wealth in nonmonetary assets or in relatively stable foreign currency.
   2. The general population regards monetary amounts not in terms of the local currency

but in terms of a relatively stable foreign currency.

1. 3. Interest rates, wages and prices are linked to a price index.
   4. The cumulative inflation rate over three years is approaching or exceeds 50%.

2. According to PAS 29, all of the following would indicate that hyperinflation exists, except

1. 1. The general population regards monetary amounts in terms of relatively stable foreign currency.
   2. The cumulative inflation rate over three years is approaching, or exceeds 100%.
   3. Inflation rates have exceeded interest rates in three successive years.
   4. The general population prefers to keep its wealth in nonmonetary assets.

3. According to PAS 29, which of the following would indicate that hyperinflation exists?

1. 1. Sales on credit are at lower prices than cash sales.
   2. Inflation is approaching, or exceeds, 20% per year.
   3. Monetary items do not increase in value.
   4. People prefer to keep their wealth in nonmonetary assets or a stable foreign currency.

4. The financial statements of an entity that reports in the currency of a hyperinflationary economy shall be stated in terms of

1. 1. Historical cost
   2. Current cost
   3. Fair value
   4. Measuring unit current at the end of reporting period

5. The gain or loss on the net monetary position in a hyperinflationary economy shall be included in

1. 1. Profit or loss and separately disclosed
   2. Retained earnings
   3. Equity
   4. Comprehensive income

6. An entity is reporting according to PAS 29. The entity’s monetary assets exceed its monetary liabilities. Which of the following statements is true?

1. There will be a loss on the net monetary position.
2. Any gain or loss on the net monetary position is recognized in other comprehensive income.

1. I only
2. II only
3. Both I and II
4. Neither I nor II

7. In a hyperinflationary economy, amounts in the statement of financial position not expressed in the measuring unit current at the end of reporting period are restated by applying the

1. 1. General price index
   2. Specific price index
   3. Both the general price index and the specific price index
   4. Either the general price index or the specific price index

8. In a hyperinflationary economy, monetary items

1. 1. Are not restated because they are already expressed in terms of the measuring unit current at the end of reporting period.
   2. Are not restated because they do not represent money held and items to be

received or paid in money.

1. 3. Are restated applying the general price index.
   4. Are restated applying the specific price index.

9. According to PAS 29, all of the following are monetary items, except

1. 1. Trade payables
   2. Trade receivables
   3. Administration costs paid in cash
   4. Loan repayable at par value

10. An entity has a subsidiary that operates in a hyperinflationary economy. The subsidiary’s financial statements are measured in terms of the local currency, which is the zloty. The subsidiary’s financial statements have been restated in accordance with IAS 29. The parent is located in the United States and prepares the consolidated financial statements in U.S. dollars. Which of the following accounting procedures is correct in terms of the consolidation of the subsidiary’s financial statements?

1. 1. The subsidiary’s financial statements shall be prepared using the zloty and then retranslated into U.S. dollars.

1. 2. The subsidiary’s financial statements shall be prepared using the zloty, then restated according to IAS 29, and then retranslated into U.S. dollars at closing rate.
   3. The subsidiary’s financial statements shall be remeasured in U.S. dollars, then

restated according to IAS 29 and consolidated.

1. 4. The subsidiary’s financial statements shall be deconsolidated and not included in the consolidated financial statements.

11. When computing information on a constant peso basis, which of the following is classified as nonmonetary?

1. 1. Allowance for doubtful accounts
   2. Accumulated depreciation – equipment
   3. Unamortized premium on bonds payable
   4. Advances to unconsolidated subsidiaries

12. When computing information on a constant peso basis, which of the following is classified as nonmonetary?

1. 1. Obligations under warranties
   2. Accrued expenses
   3. Unamortized discount on bonds payable
   4. Refundable deposits

13. When computing information on a constant peso basis, which of the following is classified as nonmonetary?

1. 1. Cash surrender value
   2. Long- term receivables
   3. Accrued losses on firm purchase commitments
   4. Inventories

14. When computing information on a constant peso basis, which of the following is classified as monetary?

1. 1. Goodwill
   2. Equipment
   3. Patent
   4. Allowance for doubtful accounts

15. During a period of inflation, an account balance remains constant. With respect to this account, a purchasing power loss will be recognized if the account is a

1. 1. Monetary asset
   2. Monetary liability
   3. Nonmonetary asset
   4. Nonmonetary liability

16. During a period of inflation, an account balance remains constant. With respect to this account, a purchasing power gain will be recognized if the account is a

1. 1. Monetary liability
   2. Monetary asset
   3. Nonmonetary liability
   4. Nonmonetary asset

17. During a period of deflation in which a liability account balance remains constant, which of the following occurs?

1. 1. A purchasing power loss if the item is a nonmonetary liability.
   2. A purchasing power gain if the item is a nonmonetary liability.
   3. A purchasing power loss if the item is a monetary liability.
   4. A purchasing power gain if the item is a monetary liability.

18. During a period of inflation in which a liability account balance remains constant, which of the following occurs?

1. 1. A purchasing power loss if the item is a nonmonetary liability.
   2. A purchasing power gain if the item is a nonmonetary liability.
   3. A purchasing power loss if the item is a monetary liability.
   4. A purchasing power gain if the item is a monetary liability.

19. During a period of deflation, an entity would have the greatest gain in general purchasing power by holding

1. 1. Cash
   2. Property, plant and equipment
   3. Accounts payable
   4. Mortgage payable

20. During a period of inflation, the specific price of land increased at a lower rate than the general price index. The accounting method that would measure the land at the highest amount is

1. 1. Historical cost / nominal peso
   2. Current cost / nominal peso
   3. Current cost / constant peso
   4. Historical cost / constant peso

21. In current cost financial statements

1. 1. General price level gains or losses are recognized on net monetary items.
   2. Amounts are always stated in common purchasing power unit of measurement.
   3. All items in the statement of financial position are different from historical cost.
   4. Holding gains are recognize

22. An entity adjusted its historical cost income statement by applying specific price index to its depreciation and cost of goods sold. The entity’s adjusted income statement is prepared according to

1. 1. Fair value accounting
   2. Purchasing power accounting
   3. Current cost accounting
   4. Nominal peso accounting

23. An entity prepares financial statements on a current cost basis. How should the entity compute cost of goods sold on a current cost basis?

1. 1. Number of units sold times average current cost of units during the year.
   2. Number of units sold times current cost of units at year-end.
   3. Number of units sold times current cost of units at the beginning of the year.
   4. Beginning inventory at current cost plus cost of goods purchased less ending inventory at current cost.

24. In a period of rising general price level, an entity discloses income on a current cost basis. Compared to historical cost income from continuing operations, which of the following conditions increases the entity’s current cost income from continuing operations?

1. 1. Current cost of equipment is the same as historical cost.
   2. Current cost of land is less than historical cost.
   3. Current cost of cost of goods sold is less than historical cost.
   4. Ending net monetary assets are less than beginning net monetary assets.

25. Could current cost financial statements report holding gains for goods sold during the period and holding gains on inventory at the end of the period?

1. Goods sold
2. Inventory

1. Both I and II
2. I only
3. II only
4. Neither I nor II

26. Under PAS 29, which of the following situations does not indicate that hyperinflation exists?

1. 1. People prefer to keep their wealth in nonmonetary assets.
   2. People prefer to keep their wealth in relatively stable foreign currency.
   3. The cumulative inflation rate over three years exceeds or is approaching 20%.
   4. Credit sales and purchases take place at prices that compensate for the expected loss of purchasing power during the credit period even if credit period is short.

27. The restatement of financial position of an entity that reports in the currency of a hyperinflationary economy is accomplished by means of

1. 1. Nominal peso accounting
   2. Constant peso accounting
   3. Split accounting
   4. Intrinsic accounting

28. In hyperinflationary economy, balance sheet amounts not expressed in the measuring unit current at balance sheet date are restated by applying the

1. 1. General price index
   2. Consumer price index
   3. Suggested retail price index
   4. Manufacturer price index

29. The restatement of historical peso financial statements to reflect the general price level change results in presenting assets at

1. 1. Lower of cost or market value
   2. Current appraisal value
   3. Cost adjusted for purchasing power change
   4. Current replacement cost

30. The gain or loss on the net monetary position in a hyperinflationary economy shall be charged to

1. 1. Experience
   2. Profit or loss
   3. Retained earnings
   4. Other comprehensive income

31. An entity should present information on the effect of changing prices in a hyperinflationary economy in

1. 1. The auditor’s report
   2. The body of financial statements
   3. The notes to the financial statements
   4. The management report to shareholders

32. An entity that wishes to present information about the effect of changing prices in a non- hyperinflationary economy should report this information

1. 1. In the statement of cash flows
   2. In the statement of financial position
   3. In the statement of comprehensive income
   4. As a supplementary information to the financial statements