hyperinflation

问题如下：

Question

A subsidiary of a European based parent company operates in a foreign country experiencing hyperinflation. The general price level and exchange rates for the country were reported as:

If the subsidiary reported a capital stock of 100,000 (in foreign currency units) at the beginning of the year, the reported value at the end of the year is closest to:

选项：

A.A.€16,000. B.B.€27,000. C.C.€40,000.

解释：

Solution

1. Incorrect because it does not restate the capital stock in terms of the general price index and translates the value at the ending exchange rate. Reported value of capital stock = 100,000 × 0.160 = 16,000.

2. Incorrect because it uses the average general price index for the year in the restatement factor. Ending reported value of capital stock = 100,000 × (250/150) × 0.160 = 26,667 ≈ 27,000.

3. Correct because under IFRS, capital stock is first restated in terms of general price level and then translated at the current exchange rate at the end of the period. The restatement factor using the general price index is 2.5 (= 375/150). Therefore the inflation adjusted foreign currency value is 100,000 × 2.5 = 250,000. The ending exchange rate is 0.160 so the reported value is 250,000 × 0.160 = 40,000.

Multinational Operations

• analyze how alternative translation methods for subsidiaries operating in hyperinflationary economies affect financial statements and ratios