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segalm

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tT
发表于 2011-7-11 19:15 | 只看该作者

Hyperinflation Restatement

statements, adjusted, account
U.S. GAAP says use temporal method, no restatement.

IFRS says first restate your statements to account for hyperinflation, then use current rate mathod. How do you do that?

1. Cash is cash, no adjustment.
2. Inventory seems to be adjusted as if all inventory were purchased at current prices. I would think it should be done on weighted average or some other way, but that's what I have written in my notes. Can someone confirm?
3. Capital stock should be valued at current prices...makes sense. You spent $1 billion in stock 5 years ago, with hyperinflation, this stock is worth more, just like land and gold appreciate due to inflation.
4. Retained earnings will have to be adjusted to offset all changes.
5. Sales are adjusted based on average inflation. Makes sense.

Another question I have is that in one example, they show price index at beginning of year as 100, and 200 at year end, that's 100% hyperinflation. The average price index is given as 125. Here is my question: In restating sales of $10,000, for example, they set it at $16,000, apparently $10,000 * 200/125 = $16,000. If the average price index is 125, why not adjust sales to $12,500? How do you explain 200/125?
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firat

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发表于 2011-7-11 19:15 | 只看该作者
1. Cash initially no adjustment. But at the end of adjustment for inflation you recognize "purchasing power gain/loss" which includes beginning cash, change in cash, receivables and monetary liabilities.
2. Non monetary assets are translated (adjusted) for inflation.
3.Yes.
4. NI is translated at current prices, Dividends @ the fx rate when they were declared. Thus, RE has a mixed effect.
5. Yes.

Because, say, next year beg PI is 200 and ending PI is 300, the avg was 250, you'll be using yr2 beg values * 300/250 and NOT yr2 beg values * 2.50. Makes sense? I guess, I did a terrible job explaining the last question.

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onelife1

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3#
发表于 2011-7-11 19:15 | 只看该作者
@palantir: I think you're talking about "normal" economies, not hyperinflationary.



Edited 1 time(s). Last edit at Friday, February 11, 2011 at 10:54AM by Iginla2010.

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ayaz_mahmud369

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4#
发表于 2011-7-11 19:15 | 只看该作者
In which case do you do temporal first and then current rate???

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giants2010

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5#
发表于 2011-7-11 19:15 | 只看该作者
U.S. GAAP temoral method.

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Newhuman

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6#
发表于 2011-7-11 19:15 | 只看该作者
Hyperinflationary economies don't require "temporal then current" under US GAAP. You just do temporal method. In IFRS you restate for inflation then do current rate.



"U.S. GAAP requires a very different approach for translating the foreign cur- rency financial statements of foreign entities located in highly inflationary economies. SFAS 52 does not allow restatement for inflation, but instead requires the temporal method to translate financial statements kept in a highly inflationary currency. However, despite the use of the temporal method, the resulting transla- tion adjustment is included as a gain or loss in determining net income."

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redskins44

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7#
发表于 2011-7-11 19:15 | 只看该作者
You are right, what I said isn't as absolute as I made it sound. I guess (still rusty, pardon me), and see if you agree with that: If the functional currency is DIFFERENT from the presentation currency, then you always have to do current rate method, whether you did temporal translation before that or not.

Back to the original question how are temporal method translation adjustments differ from IFRS's restatement?

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