Hyperinflation is indicated by characteristics of the economic 11.

When comparative statements are prepared, the

environment of a country which include but are not limited to the
following:
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 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 even of the period is short.
d. Interest rates, wages and prices are linked to a price index.
e. The cumulative rate over 3 years is approaching or
exceeds 100%.
Constant Peso Accounting – restatement of conventional or
historical financial statements in terms of the current purchasing
power of the peso through the use of index number.
Monetary Items - money held and assets and liabilities to be
received or paid in fixed or determinable amount of money.
monetary items of the preceding year are expressed in
terms of the index number at the end of the current year.
If the net monetary assets at historical cost exceed the net
monetary assets at current pesos, there is gain on purchasing
power. If the net monetary assets at historical cost are less than
the net monetary assets at current pesos, there is loss on
purchasing power.
The rule is the reversed for net monetary liabilities.
Economy ceasing to be hyperinflationary
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
amount in the subsequent financial statements.

Monetary items are assets and liabilities whose amounts are fixed in Problems:
the sense that the amounts ultimately realizable or the amounts 1. Anselma reported the following assets at year end:
ultimately payable are the same that appear on the historical Cash in bank 2,000
statements. They remain the same regardless of the change in the Accounts receivable 4,000
general price level. Advances to employees 200
Advances to suppliers 400
Nonmonetary items – their peso amounts reported in the financial Inventory 1,500
statements differ from the amounts that are ultimately realizable or Financial Assets at Fair Value 500
payable. Financial Assets at amortized cost 2,500
Prepaid Expense 100
Procedures of restatement: Patent 1,000
1. The restatement is made by applying a general price index. In preparing financial statements in a hyperinflationary
2. The items in the financial statements are classified into economy, what total amount should be reported as
monetary and nonmonetary. monetary assets?
3. Monetary items are not restated because these are
already expressed in terms of the monetary unit current at 2. Wishful Company reported the following liabilities at year
the end of reporting period. end:
4. Nonmonetary items are restated by applying the general Accounts Payable 1,000
price index from the date of acquisition to the end of Accrued Expenses 500
reporting period. Some nonmonetary items are carried at Unearned Revenue 300
amounts current at end of reporting period such as net Advances from Customers 1,200
realizable value and fair value. Estimated Warranty Liability 200
Thus, inventory carried at net realizable value and financial Bonds Payable 3,000
assets measured at fair value are no longer restated. Finance Lease Liability 4,000
5. Some nonmonetary items are carried at amount current at Deferred tax Liability 400
date other than acquisition date, for example, PPE are
revalued. In such case, the carrying amounts are restated In preparing financial statements in a hyperinflationary
from the date of revaluation. economy, what total amount should be reported as
6. All items in the income statement are restated by applying monetary liabilities?
the change in the general price index from dates when
items of income and expenses were initially recorded. 3. Wholesome Company was formed on January 1, 2007.
However, for practical purposes, the average index may be Selected balances from historical cost statement of
used. financial position on December 31, 2013 were:
7. The general purchasing power gain or loss is computed. Land (purchased on January 1, 2007) 2,400
This pertains only to monetary items. Investment in bonds (purchased on January 1, 1,200
8. The restated amount of a nonmonetary item is reduced 2010 and measured at amortized cost)
when it exceeds the recoverable amount. Long term debt (issued on January 1, 2007) 1,600
9. Any revaluation surplus recognized previously is
eliminated. The general price index was 120 on January 1, 2007, 150
10. Retained earnings would be the balancing figure in the on January 1, 2010, and 300 on December 31, 2013. What
restated statement financial position. should be reported in the hyperinflationary statement of
financial position on December 31, 2013?
 4. Wishful Company provided the following information The noncurrent liabilities were a loan raised on March 31,
during 2013: 2011.
Inventory – January 1 1,650 a. The total assets after adjusting for
Purchases 4,000 hyperinflation should be:
Inventory – December 31 2,500
b. Determine the Retained Earnings on December
The relevant index numbers are 120 on January 1, 2013, 31, 2011:
280 on December 31, 2013, and the average index for
2012 is 110. What is the cost of goods sold in a Problem 2
hyperinflationary income statement for 2013?
Gironemo Company provided the following information for
5. Yearn Company provided the following information for the 2021 and 2022
year ended December 31, 2013 2021 2022
Net monetary assets - January 1 800 Cash 3,000 4,250
Sales 5,000 Inventory 2,200 3,000
Purchases 3,000 Equipment (net) 1,500 1,400
Expenses 1,000 Land 4,500 4,500
Income tax 600 Current Liab (all 1,500 2,000
Cash Dividend paid on December 31 2013 200 monetary
Non-Current Liab 6,000 6,500
(all monetary)
The sales, purchases, expenses, and income tax accrued Share Capital 3,000 3,000
evenly during the year. Selected general price index Retained Earnings 700 1,650
numbers are 100 on January 1 and 300 on December 31. Sales 8,000
What is gain or loss on purchasing power during the year? Inventory, Beg 2,200
Purchases 5,200
Inventory, End 3,000
6. The following liabilities and equity relate to Anselmo General and Selling 1,700
Company operating in a hyperinflationary economy: Expenses
Depreciation 100
Before restatement After restatement Income tax 500
Liabilities 2,000 2,500 Cash Dividend 350
Share Capital 5,000 8,500
Revaluation Surplus 1,000 ? a. The pertinent index numbers are:
Retained Earnings 1, 500 ? January 1, 2020 100
Total 9,500 13,000 January 1, 2021 100
December 31, 2021 120
What would be the balances of the revaluation surplus and December 31, 2022 200
retained earnings after restatement? b. The land and equipment were acquired on January 1,
2020.
c. The entity was organized on January 1, 2020.
Do it Yourself Problems d. The cash dividend was paid at the end of 2022.

Problem 1 Required:
Lebron James Company operates in a hyperinflationary
economy. Its balance sheet at December 31, 2011, follows: 1. Comparative statement of financial position restated to
(PESOS) 2022 price level
Property, Plant and Equipment 1,800
Inventory 5,400 2. Income statement for 2022 restated to 2022 price level
Cash 700
Share Capital (issued in 2007) 800
3. Computation of gain or loss on purchasing power for 2022
Retained Earnings 4,700
Noncurrent liabilities 1,000
Current Liabilities 1,400
The general price index had moved in this way:
December 31
2007 100
2008 130
2009 150
2010 240
2011 300
The Property, Plant and Equipment were purchased on
December 31, 2009, and there is a six month’s inventory held.