HKAS 29 - Hyperinflationary Economies (Condensed)

Scope & Hyperinflation Indicators

Core Requirement

HKAS 29 applies to financial statements (including consolidated) of any entity whose functional currency is the currency of a hyperinflationary economy.

Why Restatement is Necessary

In hyperinflation, money loses purchasing power so rapidly that comparing amounts from different times (even within the same period) is misleading.

Characteristics of Hyperinflation

Application Date

Applies from the beginning of the reporting period in which hyperinflation is identified.

Restatement Principles

General Principles

Financial statements (historical cost or current cost) are useful only if expressed in terms of the measuring unit current at the end of the reporting period.

Prohibitions

• Supplemental presentation of restated information with unrestated financial statements is not permitted.
• Separate presentation of financial statements before restatement is discouraged.

Gain or Loss on Net Monetary Position

Included in profit or loss and separately disclosed.

Judgement and Consistency

Consistent application of procedures and judgements is more important than precise accuracy of resulting amounts.

Historical Cost – Statement of Financial Position

General Rule

Amounts not already expressed in the measuring unit current at the end of the reporting period are restated by applying a general price index.

Monetary Items (¶12)

Not restated – they are already expressed in the monetary unit current at the end of the reporting period (e.g., cash, receivables, payables).

Index-Linked Items (¶13)

Adjusted in accordance with the agreement (e.g., index-linked bonds and loans) and carried at that adjusted amount.

Non-Monetary Items (¶14-19)

All other assets and liabilities. Some carried at current amounts (e.g., net realisable value, fair value) are not restated. All others are restated.

Special Circumstances

• No detailed records: Use independent professional assessment as basis for restatement.
• No general price index: Use estimate based on exchange rate movements with a stable foreign currency.

Impairment (¶19)

Restated amount reduced to recoverable amount (e.g., PPE, goodwill) or net realisable value (inventories) as per applicable HKFRS.

Equity Method Investees (¶20)

Investee’s financial statements are restated per HKAS 29; when expressed in foreign currency, translated at closing rates.

Borrowing Costs (¶21)

Owners’ Equity

• First period: Components (except retained earnings and revaluation surplus) restated from contribution dates; revaluation surplus eliminated; retained earnings derived from all other amounts.
• Subsequent periods: All components restated from beginning of period or contribution date, if later.

Historical Cost – Statement of Comprehensive Income

Requirement (¶26)

All items in the statement of comprehensive income are expressed in the measuring unit current at the end of the reporting period. Restate by applying the change in general price index from when items were initially recorded.

Gain or Loss on Net Monetary Position (¶27-28)

Concept

• Excess monetary assets over liabilities → loses purchasing power.
• Excess monetary liabilities over assets → gains purchasing power (to the extent not linked to a price level).

Calculation Methods

Presentation

• Included in profit or loss.
• Adjustment to index-linked items is offset against the gain/loss.
• Interest income/expense and foreign exchange differences related to net monetary position may be presented together with the gain/loss.

Current Cost Financial Statements

Statement of Financial Position (¶29)

Items stated at current cost are not restated – they are already expressed in the measuring unit current at the end of the reporting period. Other items are restated per ¶11-25.

Statement of Comprehensive Income (¶30)

Before restatement, costs are recorded at current costs at the time of consumption (e.g., cost of sales, depreciation). All amounts are restated to the measuring unit current at the end of the reporting period by applying a general price index.

Gain or Loss on Net Monetary Position (¶31)

Accounted for in accordance with ¶27-28.

Corresponding Figures (¶34)

Comparative figures for the previous period are restated by applying a general price index so they are presented in the measuring unit current at the end of the reporting period. Information for earlier periods is also expressed in that unit.

Consolidated Financial Statements (¶35-36)

Subsidiaries in Hyperinflationary Economies

Subsidiaries reporting in hyperinflationary currencies are restated using their own country’s general price index before consolidation. Foreign subsidiaries’ restated financial statements are translated at closing rates.

Different Reporting Period Ends

All items (monetary and non-monetary) are restated to the measuring unit current at the date of the consolidated financial statements.

Ceasing Hyperinflation (¶38)

Disclosures (¶39-40)

Purpose

To make clear the basis of dealing with inflation effects and provide information necessary to understand that basis and resulting amounts.

Effective Date (¶41)

Operative for financial statements covering periods beginning on or after 1 January 2005.

Key Takeaways Summary