Question
Hyperinflationary Economies Consider two companies with subsidiaries in Venezuela, a country that has been identified as hyperinflationary. U.S. Marts reporting currency is the U.S. dollar,
Hyperinflationary Economies Consider two companies with subsidiaries in Venezuela, a country
that has been identified as hyperinflationary. U.S. Marts reporting currency is the U.S. dollar, and it uses
U.S. GAAP to consolidate its Venezuelan subsidiary. Euro Marts presentation currency is the euro, and
it uses IFRS to consolidate its Venezuelan subsidiary. For both companies, the functional currency of its
subsidiary is the local currency.
a. Prior to the identification of Venezuela as a hyperinflationary economy, both U.S. Mart and Euro Mart
used the same procedures to convert nonmonetary accounts, such as plant assets, to the reporting or
presentation currency. But because Venezuela has been identified as a hyperinflationary economy,
these procedures now differ. Explain conversion procedures for plant assets following U.S. GAAP
and IFRS, before and after Venezuela was identified as hyperinflationary.
b. Assume the Venezuelan subsidiary of each company has land reported at VEF10,000,000. U.S. Marts
subsidiary acquired its land when the exchange rate was $0.52/VEF. Euro Marts subsidiary acquired
its land when the exchange rate was 0.35/VEF. The price level index was 100 when both subsidiaries
acquired their land. Currently the exchange rate is 0.10/VEF and the price level index is 400. Calcu
late how the land will be reported in the consolidated balance sheet of U.S. Mart and Euro Mart.
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