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Financial Reporting in Hyperinflationary Economies

SOBRIQUET NICKNAME Co. operates in a hyperinflationary economy. Its unrestated financial

statements are provided below:

SOBRIQUET NICKNAME Co.

Statement of financial position
As of December 31, 20x2
  20x2 20x1
ASSETS
Cash 80,000 60,000
Accounts receivable 160,000 120,000
Allowance for doubtful accounts (40,000) (20,000)
Inventory (at cost) 200,000 160,000
Land (at cost) 400,000 400,000
Building (at cost) 2,000,000 2,000,000
Accumulated depreciation (800,000) (600,000)
Total assets 2,000,000 2,120,000
LIABILITIES AND EQUITY
Accounts payable 80,000 188,000
Loan payable 400,000 320,000
Total liabilities 480,000 508,000
Share capital 1,200,000 1,200,000
Retained earnings 320,000 412,000
Total equity 1,520,000 1,612,000
Total liabilities and equity 2,000,000 2,120,000

SOBRIQUET NICKNAME Co.

Statement of profit or loss and other comprehensive income
For the year ended December 31, 20x2
Sales 1,600,000

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Cost of sales:
Inventory, January 1 160,000
Purchases 1,200,000
Total goods available for sale 1,360,000
Inventory, December 31 (200,000) (1,160,000)
Gross income 440,000
Depreciation expense (200,000)
Distribution costs (140,000)
Bad debts expense (20,000)
Finance cost (40,000)
Profit before tax 40,000
Income tax expense (12,000)
Profit for the year 28,000
Other comprehensive income -
Total comprehensive income for the year 28,000

Additional information:
 The land and building were acquired on April 1, 20x0.
 The share capital was issued on March 1, 20x0.
 Sales, purchases, and expenses (except interest expense) were incurred evenly during the year.
 Interest expense was recognized and paid on December 31, 20x2.
 Dividends of ₱120,000 were declared and paid on December 31, 20x2.
 Selected values of general price indices (CPI) are shown below:
March 1, 20x0……………………………………………...100
April 1, 20x0………………………………………………..100
Average for 20x1…………………………………………..110
December 31, 20x1…………………..………….…………120
Average for 20x2…………………………………………..125
December 31, 20x2………………………………………….140

RESTATEMENT OF FINANCIAL STATEMENTS

SOBRIQUET NICKNAME Company

Statement of financial position
As of December 31, 20x2
(Restated in terms of December 31, 20x2 current pesos)
  20x2 20x1

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  Historical Fraction Restated Historical Fraction Restated

ASSETS
80,000 80,000 60,000 70,000
Cash N/A 140 / 120
160,000 160,000 120,000 140,000
Accounts receivable N/A 140 / 120
Allowance for doubtful (40,000) (40,000) (20,000) (23,333)
accounts N/A 140 / 120
200,000 224,000 160,000 203,636
Inventory (at cost) 140 / 125 140 / 110
400,000 560,000 400,000 560,000
Land (at cost) 140 / 100 140 / 100
2,000,00 2,000,00
2,800,000 2,800,000
0 0
Building (at cost) 140 / 100 140 / 100
(800,000) (1,120,000
(600,000) (840,000)
)
Accumulated depreciation 140 / 100 140 / 100
2,000,00 2,120,00 2,910,30
2,664,000
0 0 3
Total assets    

LIABILITIES AND EQUITY

80,000 80,000 188,000 219,333
Accounts payable N/A 140 / 120
400,000 400,000 320,000 373,333
Loan payable N/A 140 / 120
480,000 480,000 508,000 592,667
Total liabilities    
1,200,00 1,200,00
1,680,000 420,000
0 0
Share capital 140 / 100 140 / 100
320,000 1,897,63
504,000 412,000
(squeeze (squeeze 6
Retained earnings ) )
1,520,00 1,612,00
2,184,000 2,317,636
0 0
Total equity    
2,000,00 2,120,00
2,664,000 2,910,303
0 0
Total liabilities and equity    

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SOBRIQUET NICKNAME Company

Statement of profit or loss and other comprehensive income
For the year ended December 31, 20x2
(Restated to December 31, 20x2 current pesos)

  Historical Frac-tion Restated

1,600,000 1,792,000
Sales 140/125

Cost of sales:
203,636
Inventory, Jan. 1 160,000 140/110
1,344,000
Purchases 1,200,000 140/125
Total goods available for 1,547,636
sale 1,360,000
(1,160,000) (224,000) (1,323,636)
(200,000) 140/125
Inventory, Dec. 31
440,000 468,364
Gross income
(200,000) (280,000)
Depreciation expense 140/100
(140,000) (156,800)
Distribution costs 140/125
(20,000) (20,000)
Bad debts expense N/A
(40,000) (40,000)
Finance cost 140/140

Gain on net monetary position 7,060

40,000 (196)
Profit before tax  
(12,000) (13,440)
Income tax expense 140/125
28,000 (13,636)
Profit for the year  

Other comprehensive income - -

Total comprehensive income for the yr. 28,000 (13,636)