Financial Reporting in Hyperinflationary Economies

Indian Accounting Standard (Ind AS) 29

Financial Reporting in
Hyperinflationary Economies
Contents
Paragraphs
SCOPE

14

THE RESTATEMENT OF FINANCIAL STATEMENTS

Historical cost financial statements
Balance sheet

537
1128
1125

Statement of profit and loss

26

Gain or loss on net monetary position

Current cost financial statements

2728
2931

Balance sheet

29

Statement of profit and loss

30

Gain or loss on net monetary position

31

Taxes

32

Statement of cash flows

33

Corresponding figures

34

Consolidated financial statements

3536

Selection and use of the general price index

37

ECONOMIES CEASING TO BE HYPERINFLATIONARY

38

DISCLOSURES

3940

APPENDICES
A.

Applying the Restatement Approach under Ind AS 29

Financial Reporting in Hyperinflationary Economies

1.

Comparison with IAS 29, Financial Reporting in

Hyperinflationary Economies
1

Indian Accounting Standards

Indian Accounting Standard (Ind AS) 29

Financial Reporting in
Hyperinflationary Economies
(This Indian Accounting Standard includes paragraphs set in bold type and
plain type, which have equal authority. Paragraphs in bold type indicate the
main principles.)

Scope
1
This Standard shall be applied to the financial statements,
including the consolidated financial statements, of any entity whose
functional currency is the currency of a hyperinflationary economy.
2
In a hyperinflationary economy, reporting of operating results and
financial position in the local currency without restatement is not useful.
Money loses purchasing power at such a rate that comparison of amounts
from transactions and other events that have occurred at different times,
even within the same accounting period, is misleading.
3
This Standard does not establish an absolute rate at which
hyperinflation is deemed to arise. It is a matter of judgement when
restatement of financial statements in accordance with this Standard becomes
necessary. Hyperinflation is indicated by characteristics of the economic
environment of a country which include, but are not limited to, the following:
(a)

the general population prefers to keep its wealth in non-monetary

assets or in a relatively stable foreign currency. Amounts of
local currency held are immediately invested to maintain
purchasing power;

(b)

the general population regards monetary amounts not in terms

of the local currency but in terms of a relatively stable foreign
currency. Prices may be quoted in that currency;

Financial Reporting in Hyperinflationary Economies

(c)

sales and purchases on credit take place at prices that

compensate for the expected loss of purchasing power during
the credit period, even if the period is short;

(d)

interest rates, wages and prices are linked to a price index;

and

(e)

the cumulative inflation rate over three years is approaching, or

exceeds, 100%.

4
It is preferable that all entities that report in the currency of the same
hyperinflationary economy apply this Standard from the same date.
Nevertheless, this Standard applies to the financial statements of any entity
from the beginning of the reporting period in which it identifies the existence
of hyperinflation in the country in whose currency it reports.

The restatement of financial statements

5
Prices change over time as the result of various specific or general
political, economic and social forces. Specific forces such as changes in
supply and demand and technological changes may cause individual prices
to increase or decrease significantly and independently of each other. In
addition, general forces may result in changes in the general level of prices
and therefore in the general purchasing power of money.
6
Entities that prepare financial statements on the historical cost basis
of accounting do so without regard either to changes in the general level of
prices or to increases in specific prices of recognised assets or liabilities.
The exceptions to this are those assets and liabilities that the entity is
required, or chooses, to measure at fair value. For example, property, plant
and equipment may be revalued to fair value and biological assets are
generally required to be measured at fair value. Some entities, however,
present financial statements that are based on a current cost approach that
reflects the effects of changes in the specific prices of assets held.
7
In a hyperinflationary economy, financial statements, whether they
are based on a historical cost approach or a current cost approach, are
useful only if they are expressed in terms of the measuring unit current at
the end of the reporting period. As a result, this Standard applies to the
financial statements of entities reporting in the currency of a hyperinflationary
3

Indian Accounting Standards

economy. Presentation of the information required by this Standard as a

supplement to unrestated financial statements is not permitted. Furthermore,
separate presentation of the financial statements before restatement is
discouraged.
8
The financial statements of an entity whose functional currency is
the currency of a hyperinflationary economy, whether they are based on
a historical cost approach or a current cost approach, shall be stated in
terms of the measuring unit current at the end of the reporting period.
The corresponding figures for the previous period required by Ind AS 1,
Presentation of Financial Statements and any information in respect of
earlier periods shall also be stated in terms of the measuring unit current
at the end of the reporting period. For the purpose of presenting
comparative amounts in a different presentation currency, paragraphs
42(b) and 43 of Ind AS 21, The Effects of Changes in Foreign Exchange
Rates apply.
9
The gain or loss on the net monetary position shall be included
in profit or loss and separately disclosed.
10
The restatement of financial statements in accordance with this
Standard requires the application of certain procedures as well as judgement.
The consistent application of these procedures and judgements from period
to period is more important than the precise accuracy of the resulting amounts
included in the restated financial statements.

Historical cost financial statements

Balance sheet
11
Balance sheet amounts not already expressed in terms of the
measuring unit current at the end of the reporting period are restated by
applying a general price index.
12
Monetary items are not restated because they are already expressed
in terms of the monetary unit current at the end of the reporting period.
Monetary items are money held and items to be received or paid in money.

Financial Reporting in Hyperinflationary Economies

13
Assets and liabilities linked by agreement to changes in prices, such
as index linked bonds and loans, are adjusted in accordance with the
agreement in order to ascertain the amount outstanding at the end of the
reporting period. These items are carried at this adjusted amount in the
restated balance sheet.
14
All other assets and liabilities are non-monetary. Some non-monetary
items are carried at amounts current at the end of the reporting period, such
as net realisable value and fair value, so they are not restated. All other
non-monetary assets and liabilities are restated.
15
Most non-monetary items are carried at cost or cost less depreciation;
hence they are expressed at amounts current at their date of acquisition.
The restated cost, or cost less depreciation, of each item is determined by
applying to its historical cost and accumulated depreciation the change in a
general price index from the date of acquisition to the end of the reporting
period. For example, property, plant and equipment, inventories of raw
materials and merchandise, goodwill, patents, trademarks and similar assets
are restated from the dates of their purchase. Inventories of partly-finished
and finished goods are restated from the dates on which the costs of
purchase and of conversion were incurred.
16
Detailed records of the acquisition dates of items of property, plant
and equipment may not be available or capable of estimation. In these rare
circumstances, it may be necessary, in the first period of application of this
Standard, to use an independent professional assessment of the value of
the items as the basis for their restatement.
17
A general price index may not be available for the periods for which
the restatement of property, plant and equipment is required by this
Standard. In these circumstances, it may be necessary to use an estimate
based, for example, on the movements in the exchange rate between the
functional currency and a relatively stable foreign currency.
18
Some non-monetary items are carried at amounts current at dates
other than that of acquisition or that of the balance sheet, for example
property, plant and equipment that has been revalued at some earlier date.
In these cases, the carrying amounts are restated from the date of the
revaluation.
5

Indian Accounting Standards

19
The restated amount of a non-monetary item is reduced, in accordance
with appropriate Indian Accounting Standards, when it exceeds its
recoverable amount. For example, restated amounts of property, plant and
equipment, goodwill, patents and trademarks are reduced to recoverable
amount and restated amounts of inventories are reduced to net realisable
value.
20
An investee that is accounted for under the equity method may report
in the currency of a hyperinflationary economy. The balance sheet and
statement of profit and loss of such an investee are restated in accordance
with this Standard in order to calculate the investors share of its net assets
and profit or loss. When the restated financial statements of the investee
are expressed in a foreign currency they are translated at closing rates.
21
The impact of inflation is usually recognised in borrowing costs. It is
not appropriate both to restate the capital expenditure financed by borrowing
and to capitalise that part of the borrowing costs that compensates for the
inflation during the same period. This part of the borrowing costs is
recognised as an expense in the period in which the costs are incurred.
22
An entity may acquire assets under an arrangement that permits it to
defer payment without incurring an explicit interest charge. Where it is
impracticable to impute the amount of interest, such assets are restated
from the payment date and not the date of purchase.
23

[Refer to Appendix 1]

24
At the beginning of the first period of application of this Standard, the
components of owners equity, except retained earnings and any revaluation
surplus, are restated by applying a general price index from the dates the
components were contributed or otherwise arose. Any revaluation surplus
that arose in previous periods is eliminated. Restated retained earnings are
derived from all the other amounts in the restated balance sheet.
25
At the end of the first period and in subsequent periods, all
components of owners equity are restated by applying a general price
index from the beginning of the period or the date of contribution, if later.
The movements for the period in owners equity are disclosed in accordance
with Ind AS 1.
6

Financial Reporting in Hyperinflationary Economies

Statement of profit and loss

26
This Standard requires that all items in the statement of profit and
loss are expressed in terms of the measuring unit current at the end of the
reporting period. Therefore all amounts need to be restated by applying the
change in the general price index from the dates when the items of income
and expenses were initially recorded in the financial statements.

Gain or loss on net monetary position

27
In a period of inflation, an entity holding an excess of monetary
assets over monetary liabilities loses purchasing power and an entity with
an excess of monetary liabilities over monetary assets gains purchasing
power to the extent the assets and liabilities are not linked to a price level.
This gain or loss on the net monetary position may be derived as the
difference resulting from the restatement of non-monetary assets, owners
equity and items in the statement of profit and loss and the adjustment of
index linked assets and liabilities. The gain or loss may be estimated by
applying the change in a general price index to the weighted average for
the period of the difference between monetary assets and monetary liabilities.
28
The gain or loss on the net monetary position is included in profit or
loss. The adjustment to those assets and liabilities linked by agreement to
changes in prices made in accordance with paragraph 13 is offset against
the gain or loss on net monetary position. Other income and expense items,
such as interest income and expense, and foreign exchange differences
related to invested or borrowed funds, are also associated with the net
monetary position. Although such items are separately disclosed, it may be
helpful if they are presented together with the gain or loss on net monetary
position in the statement of profit and loss.

Current cost financial statements

Balance sheet
29
Items stated at current cost are not restated because they are already
expressed in terms of the measuring unit current at the end of the reporting

Indian Accounting Standards

period. Other items in the balance sheet are restated in accordance with
paragraphs 11 to 25.

Statement of profit and loss

30
The current cost statement of profit and loss, before restatement,
generally reports costs current at the time at which the underlying transactions
or events occurred. Cost of sales and depreciation are recorded at current
costs at the time of consumption; sales and other expenses are recorded at
their money amounts when they occurred. Therefore all amounts need to be
restated into 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
The gain or loss on the net monetary position is accounted for in
accordance with paragraphs 27 and 28.

Taxes
32
The restatement of financial statements in accordance with this
Standard may give rise to differences between the carrying amount of
individual assets and liabilities in the balance sheet and their tax bases.
These differences are accounted for in accordance with Ind AS 12, Income
Taxes.

Statement of cash flows

33
This Standard requires that all items in the statement of cash flows
are expressed in terms of the measuring unit current at the end of the
reporting period.

Corresponding figures
34
Corresponding figures for the previous reporting period, whether they
were based on a historical cost approach or a current cost approach, are
restated by applying a general price index so that the comparative financial
statements are presented in terms of the measuring unit current at the end
8

Financial Reporting in Hyperinflationary Economies

of the reporting period. Information that is disclosed in respect of earlier

periods is also expressed in terms of the measuring unit current at the end
of the reporting period. For the purpose of presenting comparative amounts
in a different presentation currency, paragraphs 42(b) and 43 of Ind AS 21
apply.

Consolidated financial statements

35
A parent that reports in the currency of a hyperinflationary economy
may have subsidiaries that also report in the currencies of hyperinflationary
economies. The financial statements of any such subsidiary need to be
restated by applying a general price index of the country in whose currency
it reports before they are included in the consolidated financial statements
issued by its parent. Where such a subsidiary is a foreign subsidiary, its
restated financial statements are translated at closing rates. The financial
statements of subsidiaries that do not report in the currencies of
hyperinflationary economies are dealt with in accordance with Ind AS 21.
36
If financial statements with different ends of the reporting periods are
consolidated, all items, whether non-monetary or monetary, need to be
restated into the measuring unit current at the date of the consolidated
financial statements.

Selection and use of the general price index

37
The restatement of financial statements in accordance with this
Standard requires the use of a general price index that reflects changes in
general purchasing power. It is preferable that all entities that report in the
currency of the same economy use the same index.

Economies ceasing to be hyperinflationary

38
When an economy ceases to be hyperinflationary and an entity
discontinues the preparation and presentation of financial statements
prepared in accordance with this Standard, it shall treat the amounts
expressed in the measuring unit current at the end of the previous
reporting period as the basis for the carrying amounts in its subsequent
financial statements.
9

Indian Accounting Standards

Disclosures
39

The following disclosures shall be made:

(a)

the fact that the financial statements and the corresponding figures
for previous periods have been restated for the changes in the
general purchasing power of the functional currency and, as a
result, are stated in terms of the measuring unit current at the
end of the reporting period;

(b)

whether the financial statements are based on a historical

cost approach or a current cost approach; and

(c)

the identity and level of the price index at the end of the
reporting period and the movement in the index during the
current and the previous reporting period.

(d)

the duration of the hyperinflationary situation existing in

the economy.

40
The disclosures required by this Standard are needed to make clear
the basis of dealing with the effects of inflation in the financial statements.
They are also intended to provide other information necessary to understand
that basis and the resulting amounts.

10

Financial Reporting in Hyperinflationary Economies

Appendix A
Applying the Restatement Approach under Ind
AS 29 Financial Reporting in Hyperinflationary
Economies
This Appendix is an integral part of the Indian Accounting Standard (Ind AS)
29, Financial Reporting in Hyperinflationary Economies

Background
1
This Appendix provides guidance on how to apply the requirements
of Ind AS 29 in a reporting period in which an entity identifies* the existence
of hyperinflation in the economy of its functional currency, when that economy
was not hyperinflationary in the prior period, and the entity therefore restates
its financial statements in accordance with Ind AS 29.

Issues
2

The questions addressed in this Appendix are:

(a)

how should the requirement stated in terms of the measuring

unit current at the end of the reporting period in paragraph 8 of
Ind AS 29 be interpreted when an entity applies the Standard?

(b)

how should an entity account for opening deferred tax items in

its restated financial statements?

Accounting Treatment
3
In the reporting period in which an entity identifies the existence of
hyperinflation in the economy of its functional currency, not having been
hyperinflationary in the prior period, the entity shall apply the requirements
of Ind AS 29 as if the economy had always been hyperinflationary. Therefore,
* The identification of hyperinflation is based on the entitys judgement of the
criteria in paragraph 3 of Ind AS 29

11

Indian Accounting Standards

in relation to non-monetary items measured at historical cost, the entitys

opening balance sheet at the beginning of the earliest period presented in
the financial statements shall be restated to reflect the effect of inflation
from the date the assets were acquired and the liabilities were incurred or
assumed until the end of the reporting period. For non-monetary items carried
in the opening balance sheet at amounts current at dates other than those
of acquisition or incurrence, that restatement shall reflect instead the effect
of inflation from the dates those carrying amounts were determined until the
end of the reporting period.
4
At the end of the reporting period, deferred tax items are recognised
and measured in accordance with Ind AS 12. However, the deferred tax
figures in the opening balance sheet for the reporting period shall be
determined as follows:
(a)

the entity remeasures the deferred tax items in accordance

with Ind AS 12 after it has restated the nominal carrying
amounts of its non-monetary items at the date of the opening
balance sheet of the reporting period by applying the measuring
unit at that date.

(b)

the deferred tax items remeasured in accordance with (a) are

restated for the change in the measuring unit from the date of
the opening balance sheet of the reporting period to the end of
that reporting period.

The entity applies the approach in (a) and (b) in restating the deferred tax
items in the opening balance sheet of any comparative periods presented in
the restated financial statements for the reporting period in which the entity
applies Ind AS 29.
5
After an entity has restated its financial statements, all corresponding
figures in the financial statements for a subsequent reporting period, including
deferred tax items, are restated by applying the change in the measuring
unit for that subsequent reporting period only to the restated financial
statements for the previous reporting period.

12

Financial Reporting in Hyperinflationary Economies

Illustrative example
This example accompanies, but is not part of,
Appendix A.
IE1 This example illustrates the restatement of deferred tax items when
an entity restates for the effects of inflation under Ind AS 29 Financial
Reporting in Hyperinflationary Economies. As the example is intended only
to illustrate the mechanics of the restatement approach in Ind AS 29 for
deferred tax items, it does not illustrate an entitys complete financial
statements.

Facts
IE2 An entitys balance sheet at 31 December 20X2 (before restatement)
is as follows:
Note Balance Sheet

20X2
(Rs) million

20X1
(Rs) million

300
XXX
______

400
XXX
______

XXX
______

XXX
______

XXX
______

XXX
______

Deferred tax liability

Other liabilities

30
XXX
______

30
XXX
______

Total liabilities

XXX
______

XXX
______

Total equity and liabilities

XXX
______

XXX
______

ASSETS
Property, plant and equipment
Other assets
Total assets
EQUITY AND LIABILITIES
Total equity
Liabilities

13

Indian Accounting Standards

Notes
1

Property, plant and equipment

All items of property, plant and equipment were acquired in
December 20X0. Property, plant and equipment are depreciated over
their useful life, which is five years.

Deferred tax liability

The deferred tax liability at 31 December 20X2 of Rs 30 million is
measured as the taxable temporary difference between the carrying
amount of property, plant and equipment of Rs.300 and their tax
base of Rs.200. The applicable tax rate is 30 per cent.
Similarly, the deferred tax liability at 31 December 20X1 of Rs 20
million is measured as the taxable temporary difference between the
carrying amount of property, plant and equipment of Rs 400 and
their tax base of Rs 333.

IE3 Assume that the entity identifies the existence of hyperinflation in, for
example, April 20X2 and therefore applies Ind AS 29 from the beginning of
20X2. The entity restates its financial statements on the basis of the following
general price indices and conversion factors.
General price
indices
95

Conversion factors
at 31 Dec 20X2
2.347

December 20X1

135

1.652

December 20X2

223

1.000

December 20X0 (a)

(a) For example, the conversion factor for December 20X0 is 2.347=223/95

Restatement
IE4 The restatement of the entitys 20X2 financial statements is based on
the following requirements:

14

Financial Reporting in Hyperinflationary Economies

Property, plant and equipment are restated by applying the change in

a general price index from the date of acquisition to the end of the
reporting period to their historical cost and accumulated depreciation.

Deferred taxes should be accounted for in accordance with Ind AS

12, Income Taxes.

Comparative figures for property, plant and equipment for the previous
reporting period are presented in terms of the measuring unit current
at the end of the reporting period.

Comparative deferred tax figures should be measured in accordance

with paragraph 4 of the Appendix A.

IE5 Therefore the entity restates its balance sheet at 31 December 20X2
as follows:
Note Balance Sheet (restated)

20X2
Rs million

20X1
Rs million

Property, plant and equipment

Other assets

704
XXX
________

939
XXX
________

Total assets

XXX
________

XXX
________

Total equity

XXX
________

XXX
________

Liabilities
Deferred tax liability
Other liabilities

151
XXX
________

117
XXX
________

Total liabilities

XXX
________

XXX
________

Total equity and liabilities

XXX
________

XXX
________

ASSETS
1

EQUITY AND LIABILITIES

15

Indian Accounting Standards

Notes
1

Property, plant and equipment

All items of property, plant and equipment were purchased in
December 20X0 and depreciated over a five-year period. The cost
of property, plant and equipment is restated to reflect the change in
the general price level since acquisition, ie the conversion factor is
2.347 (223/95).
Historical
Rs million

Restated
Rs million

500

1,174

Depreciation 20X1

(100)
________

(235)
________

Carrying amount 31 December 20X1

400
________

939
________

(100)

(235)

300
________

704
________

Cost of property, plant and equipment

Depreciation 20X2
Carrying amount 31 December 20X2
2

Deferred tax liability

The nominal deferred tax liability at 31 December 20X2 of Rs 30
million is measured as the taxable temporary difference between the
carrying amount of property, plant and equipment of Rs 300 and
their tax base of Rs 200. Similarly, the deferred tax liability at 31
December 20X1 of Rs 20 million is measured as the taxable
temporary difference between the carrying amount of property, plant
and equipment of Rs 400 and their tax base of Rs 333. The applicable
tax rate is 30 per cent.
In its restated financial statements, at the end of the reporting period
the entity remeasures deferred tax items in accordance with the
general provisions in Ind AS 12, ie on the basis of its restated
financial statements. However, because deferred tax items are a
function of carrying amounts of assets or liabilities and their tax
bases, an entity cannot restate its comparative deferred tax items
by applying a general price index. Instead, in the reporting period in
which an entity applies the restatement approach under Ind AS 29,
16

Financial Reporting in Hyperinflationary Economies

it (a) remeasures its comparative deferred tax items in accordance

with Ind AS 12 after it has restated the nominal carrying amounts of
its non-monetary items at the date of the opening balance sheet of
the current reporting period by applying the measuring unit at that
date, and (b) restates the remeasured deferred tax items for the
change in the measuring unit from the date of the opening balance
sheet of the current period up to the end of the reporting period.
In the example, the restated deferred tax liability is calculated as
follows:
Rs million
At the end of the reporting period:
Restated carrying amount of property,
plant and equipment (see note 1)
Tax base

704
(200)
________

Temporary difference

504
________

@ 30 per cent tax rate = Restated deferred tax liability

31 December 20X2

151
________

Comparative deferred tax figures:

Restated carrying amount of property, plant and equipment
[either 400 1.421 (conversion factor 1.421 = 135/95),
or 939/1.652 (conversion factor 1.652 = 223/135)]
568
Tax base
(333)
________
Temporary difference

235
________

@ 30 per cent tax rate = Restated deferred tax liability

31December 20X1at the general price level at the
end of 20X1

71

Restated deferred tax liability 31 December 20X1 at the

general price level at the end of 20X2(conversion factor
1.652 = 223/135)

117

17

Indian Accounting Standards

IE6 In this example, the restated deferred tax liability is increased by Rs

34 to Rs 151 from 31 December 20X1 to 31 December 20X2. That increase,
which is included in profit or loss in 20X2, reflects (a) the effect of a change
in the taxable temporary difference of property, plant and equipment, and
(b) a loss of purchasing power on the tax base of property, plant and
equipment. The two components can be analysed as follows:
Rs million
Effect on deferred tax liability because of a decrease
in the taxable temporary difference of property, plant
and equipment (-Rs 235 + Rs133) 30%
Loss on tax base because of inflation in 20X2
(Rs 333 1.652 Rs 333) 30%

31
(65)

Net increase of deferred tax liability

(34)
________

Debit to profit or loss in 20X2

34
________

The loss on tax base is a monetary loss. Paragraph 28 of Ind AS 29 explains

this as follows:
The gain or loss on the net monetary position is included in net income. The
adjustment to those assets and liabilities linked by agreement to changes in
prices made in accordance with paragraph 13 is offset against the gain or
loss on net monetary position. Other income and expense items, such as
interest income and expense, and foreign exchange differences related to
invested or borrowed funds, are also associated with the net monetary
position. Although such items are separately disclosed, it may be helpful if
they are presented together with the gain or loss on net monetary position
in the statement of profit and loss.

18

Financial Reporting in Hyperinflationary Economies

Appendix 1
Note: This Appendix is not a part of the proposed Indian Accounting
Standard (Ind AS) 29, Financial Reporting in Hyperinflationary Economies.
The purpose of this Appendix is only to bring out the differences between
the this Indian Accounting Standard and corresponding International
Accounting Standard IAS 29, Financial Reporting in Hyperinflationary
Economies and IFRIC 7, Applying the Restatement Approach under IAS 29,
Financial Reporting in Hyperinflationary Economies.

Comparison with IAS 29, Financial Reporting in

Hyperinflationary Economies and IFRIC 7
1
Ind AS 29 requires an additional disclosure regarding the duration of
the hyperinflationary situation existing in the economy as compared to IAS
29.
2
Paragraph number 23 appears as Deleted in IAS 29. In order to
maintain consistency with paragraph numbers of IAS 29, the paragraph
number is retained in Ind AS 29.
3
Different terminology is used in this standard, e.g., term balance
sheet is used instead of Statement of financial position and Statement of
profit and loss is used instead of Statement of comprehensive income.

19