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Homework answers / question archive / Hogwarts School of Witchcraft & Wizardry ACCOUNTING 102 HYPERINFLATION 1)Under PAS 29 hyperinflation is indicated by characteristics of the economic environment of a country which include all the following, except a

Hogwarts School of Witchcraft & Wizardry ACCOUNTING 102 HYPERINFLATION 1)Under PAS 29 hyperinflation is indicated by characteristics of the economic environment of a country which include all the following, except a

Accounting

Hogwarts School of Witchcraft & Wizardry

ACCOUNTING 102

HYPERINFLATION

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

a.            The general population prefers to keep its wealth in nonmonetary assets or in relatively stable foreign currency.

 

b.            The general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency.

c.             Interest rates, wages and prices are linked to a price index.

 

d.            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, exept

 

a.            The general population regards monetary amounts in terms of a relatively stable foreign currency.

b.            The cumulative inflation rate over three years is approaching or exceeds 100%.

 

c.             Inflation rates have exceeded interest rates in three successive years.

 

d.            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?

 

a.            Sales on credit are at lower prices than cash sales.

 

b.            Inflation is approaching or exceeding 20% per year.

 

c.             Monetary items do not increase in value.

 

d.            People prefer to keep its wealth in nonmonetary assets or in 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

a.            Historical cost

 

b.            Current cost

 

c.             Fair value

 

d.            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

 

a.            Profit or loss and separate disclosed

 

b.            Retained earnings

 

c.             Equity

 

d.            Comprehensive income

 

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

I.             There will be a lost in net monetary position.

 

II.            Any gain or loss on the net monetary position is recognized in other comprehensive income.

a.            I only

 

b.            II only

 

c.             Both I and II

 

d.            Neither I and 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

a.            General price index

 

b.            Specific price index

 

c.             Both the general price index and the specific price index

 

d.            Either the general price index or the specific price index

 

8.            In hyperinflationary economy, monetary items

 

a.            Are not restated because they are already expressed in terms of the measuring unit current at the end of reporting period.

b.            Are not restated because they do not represent money held an items to be received or paid in money.

c.             Are restated applying the general price index.

 

d.            Are restated applying the specific price index

 

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

 

a.            Trade payables

 

b.            Trade receivables

 

c.             Administration cost paid in cash

 

d.            Loan payable at par value

 

10.          An entity ha 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?

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

b.            The subsidiary’s financial statements shall be prepared using the zloty, then restated according to IAS 29, and then translated into U.S. dollars at closing rate.

c.             The subsidiary’s financial statements shall be remeasured in U.S. dollars, then restated according to IAS 29 and consolidated.

d.            The subsidiary’s financial statements shall be deconsolidated and bot included in the consolidated financial statements.

 

 

 

 

Multiple choice (AICPA Adapted)

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

a.         Allowance for doubtful accounts

 

b.        Accumulated depreciation- equipment

 

c.         Unamortized premium on bonds payable

 

d.        Advances to unconsolidated subsidiaries

 

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

a.         Obligations under warranties

 

b.        Accrued expenses

 

c.         Unamortized discount on bonds payable

 

d.        Refundable deposits

 

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

a.         Cash surrender value

 

b.        Long term receivables

 

c.         Accrued losses on firm purchase commitments

 

d.        Inventories

 

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

a.         Goodwill

 

b.        Equipment

 

c.         Patent

 

d.        Allowance for doubtful accounts

 

5.         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

a.         Monetary asset

 

b.        Monetary liability

 

c.         Nonmonetary asset

 

d.        Nonmonetary liability

 

6.         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

a.         Monetary liability

 

b.        Monetary asset

 

c.         Nonmonetary liability

 

d.        Nonmonetary asset

 

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

a.         A purchasing power loss if the item is nonmonetary liability.

 

b.        A purchasing power gain if the item is nonmonetary liability.

 

c.         A purchasing power loss if the item is monetary liability.

 

d.        A purchasing power gain if the item is monetary liability.

 

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

a.         A purchasing power loss if the item is nonmonetary liability.

 

b.        A purchasing power gain if the item is nonmonetary liability.

 

c.         A purchasing power loss if the item is monetary liability.

 

d.        A purchasing power gain if the item is monetary liability.

 

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

a.         Cash

 

b.        Property, plant and equipment

 

c.         Accounts payable

 

d.        Mortgage payable

 

10.      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

a.         Historical cost/ nominal cost

 

b.        Current cost/ nominal peso

 

c.         Current cost/ constant peso

 

d.        Historical cost/ constant peso

 

 Multiple choice (AICPA Adapted)

1.         In current cost financial statements

 

a.         General price level gains or losses are recognized on net monetary items.

 

b.        Amounts are always stated in common purchasing power units of measurement.

 

c.         All items in the statement in financial position are different from historical cost.

 

d.        Holding gains are recognized

 

2.         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

a.         Fair value accounting

 

b.        Purchasing power accounting

 

c.         Current cost accounting

 

d.        Nominal peso accounting

 

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

a.         Number of units sold times the average current cost of units during the year.

 

b.        Number of units sold times current cost of units at year-end.

 

c.         Number of units sold times current cost of units at the beginning of the year.

 

d.        Beginning inventory at current cost plus cost of goods purchased less ending inventory at current cost.

 

4.         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?

a.         Current cost of equipment is the same as historical cost.

 

b.        Current cost of land is less than historical cost.

 

c.         Current cost of goods sold is less than historical cost.

 

d.        Ending net monetary assets are less than the beginning net monetary assets.

 

5.         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?

I.          Goods sold

 

II.        Inventory

 

a.         Both I and II

 

b.        I only

 

c.         II only

 

    1. Neither I nor II

 

 

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