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Raymond YUEN
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YUEN is a finance professional with over 20 years practical experience in financial accounting, financial management and investment. He is a freelance trainer and grader. He also holds a PhD(Management) with research interest in market crash and Fractal Theory. He served Qualification Program of... More
  • Accounting For Hyperinflationary Economies 0 comments
    Sep 27, 2013 9:11 AM

    Accounting for Hyperinflationary Economies

    Author: YUEN Wai Pong Raymond


    This paper discusses the accounting treatment under Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards for hyperinflationary economies.

    Body of Article

    With large scale printing of money around the world, a hyperinflationary global economy is highly possible in the forthcoming 2-4 years. Per estimates, the inflation could be as high as 10 to even 20 percent per annum at the peak.

    As a result, this paper discusses the accounting treatments under Hong Kong Accounting Standards 29 Financial Reporting in Hyperinflationary Economies. However, the standard does not specify what is the inflation rate that this standard applying and subject to the judgment of the financial statement Preparer.

    Under the hyperinflationary economy, the major accounting report requirement is to restate the situation to reflect the end of reporting period situations. Furthermore, the standard does not allow presenting the conventional financial statements.

    The statements could be prepared by historical cost financial statements or by current cost financial statements.

    Historical Cost Financial Statement

    Under historical cost financial statements, the statement of financial position figures such as non-current assets and long term liabilities not already expressed in terms of the measuring unit current price level at the end of the reporting period are required to be restarted using a general price index such as the consumer price index, producer price index, or relative change in exchange rates.

    Monetary items, as they represent the money in circulation, are not required to be restated.

    For other non-monetary assets, if they are valued at fair value, then, no restatement is required. If they are valued at historical cost, then, restatement by a general price index is required.

    Some of the restatements, especially without a basis for revaluation, required being made by professional assessment.

    As inflation impacts on borrowing cost, for capital expenditure relating to the borrowing cost, the cost impacted by inflation has to be expensed instead of capitalized.

    If there is a period between purchase and settlement, the asset should be restated at settlement date instead of purchase date due to the hyperinflation.

    Equity has to be restated by a general price index.

    All profit or loss items have to be restated by a general price index from the date of incurring to the date of reporting.

    Lastly, the gain or loss on net monetary items has to be restarted and charged to the profit or loss.

    Current Cost Financial Statement

    Beside historical cost financial statements, the financial statement Preparer can also prepare by current cost basis. If the current cost basis is used, all the items in the statement of financial position will be reported in current cost.

    Gain or loss on net monetary item, and profit or loss items will be treated similarly to historical cost financial statement basis.

    Similarly, the corresponding figures of last year for comparison purpose has to be restarted using the general price index escalation.


    1. The fact of this standard being applied.
    2. The basis of preparation of the financial statements: historical cost financial statement basis or current cost financial statement basis.
    3. The identity and level of the general price index used.
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