CLASSROOM EXERCISE FOR FINANCIAL REPORTING IN HYPERINFLATIONARY

Use the following information for nos. 1 and 2

JACQUES reported the following in its statement of financial position:
Cash in bank 800,000
Accounts receivable 1,600,000
Inventory 600,000
Financial assets at fair value 200,000
Patent 400,000
Advances to employees 80,000
Advances to suppliers 160,000
Prepaid expenses 40,000
Accounts Payable 200,000
Accrued expenses 100,000
Bonds payable 600,000
Finance lease liability 800,000
Unearned revenue 60,000
Advances from customers 240,000
Estimated warranty liability 40,000
Deferred tax liability 80,000

1. If JACQUES is operating in a hyperinflationary economy, how much should be classified

as monetary assets?

2. If JACQUES is operating in a hyperinflationary economy, how much should be classified

as monetary liabilities?

3. JONES was formed on January 1, 2014. Selected balances from historical cost statement
of financial position on December 31, 2020:
Land (purchased on January 1, 2014) 1,200,000
Investment in long-term bonds (purchased on January 1, 2017) 600,000
Long term debt (issued on January 1, 2014) 800,000
The general price index was 120 on January 1, 2014, 150 on January 1, 2017 and 300 on
December 31, 2020.

What amount should be reported in a hyperinflationary statement of financial position?

4. KRABAPPEL operates in a hyperinflationary economy and has provided the following
information on December 31, 2020:
Cash 350,000
Inventory 2,700,000
Property, plant and equipment 900,000
Current liabilities 700,000
Noncurrent liabilities 500,000
Share capital 400,000
Retained earnings 2,350,000

The index number had moved on December 31 of each year: 2016 – 100; 2017 – 130;
2018 – 150; 2019 – 240 and 2020 – 300. The property, plant and equipment were
purchased on December 31, 2018 while the noncurrent liabilities were raised on
December 31, 2019. Share capital was issued on December 31, 2016. How much is the
balance of retained earnings on December 31, 2020?

5. KRUSTY reported the following historical income statement for 2020:

Sales 2,500,000
Inventory – January 1 175,000
Purchases 1,250,000
Inventory – December 31 250,000
Operating expenses 1,000,000
Depreciation 1,000,000

All items were earned and incurred evenly throughout the year except for beginning and
ending inventories which were acquired during the last week of each year. Depreciable
assets with a 5-year life were acquired on January 1, 2017. The general index numbers
were 125 on January 1, 2017; 140 on January 1, 2020 and 360 on December 31, 2020.

How much should be reported as net loss?

6. On January 1, 2017, KWAN purchased machinery for 1,200,000. The machinery was
depreciated over 10 years. On October 1, 2020, the machinery was sold for 800,000. The
general price index numbers were:
January 1, 2017 100
December 31, 2017 120
October 1, 2020 280
December 31, 2020 300

How much should be reported as loss on sale in a hyperinflationary income statement?

7. On January 1, 2020, LARGO had monetary assets of 1,500,000 and monetary liabilities
of 620,000. Sales during the year amounted to 3,900,000. Purchases and expenses
(including income tax of 585,000) amounted to 2,340,000 and 975,000 respectively. Cash
dividends of 200,000 were declared and paid on December 31, 2020. Index numbers for
2020 are 110 on January 1 and 280 on December 31. What is the gain or loss on
purchasing power for 2020?