What is Highly inflationary economy?
In short
A highly inflationary economy is one with cumulative inflation of about 100% or more over three years. A foreign subsidiary there is accounted for as if its functional currency were the parent's reporting currency.
Key takeaways
- Its statements are remeasured, not translated, so gains and losses go to net income.
- This avoids distorted balances from translating at rapidly falling exchange rates.
- The assessment is reviewed each reporting period.
Where it's tested
BAR: Foreign Currency Translation — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A foreign subsidiary operates in a highly inflationary economy. The entity must: