47 – Financial Reporting in Hyperinflationary Economies

The following information applies to questions 1 and 2.

Humpty Company began operations on January 1, 2008. Information about the company's inventory during 2008
appears below:
Units Unit Cost
Inventory, Jan. 1, 2008 300 P10
Purchases made evenly during 2008 900 12
Sales made evenly during 2008 800
Inventory, Dec. 31, 2008 400

The general price index during 2008 was as follows: January 1 – 90; Average – 120; December 31 – 135.

1. The ending inventory restated in 2008 year-end constant pesos is

a. P4,800 c. P4,000
b. P5,400 d. P4,500

2. The cost of goods sold restated in 2008 year-end constant pesos is

a. P 9,000 c. P11,250
b. P13,500 d. P10,125

Use the following information for questions 3 and 4.

Entity Q operates in hyperinflationary economy. Its balance sheet on December 31, 2008, follows:
Cash P 3,500,000
Inventory 27,000,000
Property, plant and equipment 9,000,000
Current liabilities 7,000,000
Noncurrent liabilities 5,000,000
Share capital 4,000,000
Retained earnings 23,500,000

The general price index at December 31 had moved in this way: 2004 – 100; 2005 – 130; 2006 – 150; 2007 – 240;
2008 – 300.
The property, plant and equipment was purchased on December 31, 2006, and there is six months’ inventory held. The
noncurrent liabilities were a loan raised on March 31, 2008.

3. What is the total assets on December 31, 2008 after adjusting for hyperinflation?
a. P51,500,000 c. P48,500,000
b. P39,500,000 d. P55,250,000

4. What is the retained earnings balance on December 31, 2008 after adjusting for hyperinflation?
a. P35,500,000 c. P31,250,000
b. P27,500,000 d. P23,500,000

5. The following “equity” relates to an entity operating in a hyperinflationary economy:

Before After
PAS 29 restatement
Share capital P1,000,000 P1,700,000
Revaluation reserve 200,000 ?
Retained earnings 300,000 ?
P1,500,000 P2,700,000
What would be the balances on the revaluation reserve and retained earnings after the restatement for PAS 29?
a. Revaluation reserve P0, Retained earnings P1,000,000
b. Revaluation reserve P1,000,000, Retained earnings P0
c. Revaluation reserve P200,000, Retained earnings P800,000
d. Revaluation reserve P700,000, Retained earnings P300,000

6. On January 1, 2008, Smile Now Company acquired inventory for P20,000. The inventory consisted of 10,000
identical units. The current cost of the inventory was P30,000 on July 1, 2008; on that date Smile Now Company
sold three-fourths of the inventory for P28,000. On December 31, 2008, the current cost of the inventory on hand
was P7,500. The general price index on various dates is as follows:
Jan. 1, 2008 110.0
July 1, 2008 121.0
Dec. 31, 2008 133.1
Assuming that cost of goods sold is Smile Now Company's only expense and that no purchasing power gain or loss
exist, the net income for the 2008 under current cost/constant peso basis would be
a. P14,100 c. P15,500
b. P14,000 d. P18,000

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7. The following information pertains to Inflation Company for the year 2008:
Monetary assets:
January 1 P250,000
December 31 700,000
Monetary liabilities:
January 1 100,000
December 31 300,000
Increase in net monetary items as
restated to constant peso 2,000,000
Decrease in net monetary items as
restated to constant peso 1,500,000
General price index:
January 1 125
December 31 150
The loss on purchasing power for the year 2008 is
a. P280,000 c. P250,000
b. P300,000 d. P100,000

8. The following information pertains to Yellow Company for 2008:

a. The company had net monetary items of P80,000 on January 1.
b. Sales of P300,000 and purchases of P120,000 were made evenly throughout the year
c. Operating expenses of P90,000 and income tax expense of P60,000 were incurred evenly throughout the year
d. Cash dividends of P20,000 were declared on December 31. Selected values of the CPI-U during 2008 appear
below:
Jan. 1 110.0
Average for year 121.0
Dec. 31 133.1
The purchasing power gain or (loss) for 2008 expressed in constant year-end pesos is
a. P19,800 c. P(19,800)
b. P18,000 d. P(18,000)

9. The Richmond Corporation presented the following balances from the historical peso income statement for the year
ended December 31, 2008:

Sales P350,000
Cost of goods sold 218,000
Depreciation - building 34,000
Depreciation - equipment 23,000
All other expenses 48,000

Other information include:

 Merchandise available for sale came from 2007 inventory of P28,750 and 2008 purchases of P220,000.
 Building costing P850,000 was acquired at the end of 2005.
 Equipment totalled P115,000, of which P85,000 was bought at the end of 2005 and P30,000 was bought at the
end of 2007.
 The company uses the FIFO method of inventory valuation; average indexes for the year are used in restating
inventories.
 General price indexes at year end are as follows:
2005 – 100 2007 – 106
2006 – 102 2008 – 112
(Assume that all changes in the general price-level index took place more or less evenly during the year.)

What should Richmond Corporation report as net income for the year ended December 31, 2008 restated for
general price-level changes?
a. P16,512 c. P22,016
b. P22,852 d. P21,431
P1004 Kimwell/rpcpa 10.90

10. The following information pertains to Galileo Company:

Sales (all on account) made evenly
throughout 2008 P249,000
Equipment purchased for cash on May 1,
2008 50,000
Purchases (all on account) made evenly
throughout 2008 80,000
Cash received evenly throughout 2008
from customers on account 190,000
Cash dividends declared on September 1,
2008 and paid on October 1, 2008 20,000
Land acquired for cash on June 1, 2008 30,000
Depreciation expense for 2008 10,000
Ordinary shares issued for cash on March
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 1, 2008 60,000
Operating expenses paid evenly
throughout 2008 40,000
Income tax expense paid evenly
throughout 2008 25,000
Purchase of treasury shares for cash on
Nov. 1, 2008 17,000
Sale of investment in ordinary shares on
August 1, 2008 for cash (cost =
P5,000) 8,000
Cash paid evenly throughout 2008 on
account payable 60,000
Monetary assets
January 1, 2008 50,000
December 31, 2008 100,000
Monetary liabilities
January 1, 2008 35,000
December 31, 2008 30,000
The following values of the GPI for 2008 are available:
1/1 100 8/1 114
2/1 102 9/1 116
3/1 104 10/1 118
4/1 106 11/1 120
5/1 108 12/1 122
6/1 110 12/31 124
7/1 112 Average for year 112
The purchasing power loss for 2008 in end-of-year pesos is
a. P 6,009 c. P14,174
b. P13,812 d. P25,037
MC17-15 Cabrera

11. The following information pertains to Furama Company for 2008:

a. The company had net monetary items of P1,600,000 on January 1.
b. Sales of P6,000,000 and purchases of P2,400,000 were made evenly throughout the year
c. Operating expenses of P1,800,000 and income tax expense of P1,200,000 were incurred evenly throughout the
year
d. Cash dividends of P400,000 were declared on November 30 and paid on December 31. Selected values of the
CPI-U during 2008 appear below:
Jan. 1 110.0
Average for year 121.0
Nov. 30 131.0
Dec. 31 133.1
The purchasing power loss for 2008 expressed in constant year-end pesos is
a. P 53,588 c. P396,000
b. P360,000 d. P389,588

12. Meltdown Inc., paid P1,200,000 in December 2007 for its inventory. In December 2008, one half of the inventory
was sold for P1,000,000 when the replacement cost of the original inventory was P1,400,000. Ignoring income
taxes, what amount should be shown in the current value accounting income statement for 2008?
a. P500,000 c. P300,000
b. P400,000 d. P200,000
PVII-12 RAP Cabrera 2006

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