PAS 29

Question 1

1. Hyperinflation is indicated by all of the following, except

a. The general population prefers to keep its wealth in
b. Interest rates, wages and prices are linked to a price index
c. The cumulative inflation rate over three years is approaching or exceeds 100%
d. All of these indicate hyperinflation

Answer 1

d. All of these indicate hyperinflation

Question 2

2. All would indicate that hyperinflation exists, except

a. The general population regards monetary amounts in terms of relatively stable foreign currency.
b. The cumulative inflation rate over three years is approaching or exceeds 100%.
c. Inflation rates have exceeded interest rates in three successive years.
d. The general population prefers to keep its wealth in nonmonetary assets.

Answer 2

c. Inflation rates have exceeded interest rates in three successive years.

Question 3

3. Which would indicate that hyperinflation exists?

a. Sales on credit are at lower prices than cash sales.
b. Inflation is approaching or exceeds 20% per year.
c. Monetary items do not increase in value.
d. People prefer to keep their wealth in nonmonetary assets or a stable foreign currency.

Answer 3

d. People prefer to keep their wealth in nonmonetary assets or a stable foreign currency.

Question 4

4. An entity that wishes to present information about the effect of changing prices in a hyperinflationary economy should report this information in

a. The body of the financial statements
b. The notes to financial statements
c. Supplementary schedule
d. Management report to shareholders

Answer 4

a. The body of the financial statements

Question 5

5. In a hyperinflationary economy, monetary items

a. Are not restated because they are already expressed in terms of the measuring unit current at year-end.
b. Are measured at fair value.
c. Are restated applying the general price index.
d. Are restated applying the specific price index.

Answer 5

a. Are not restated because they are already expressed in terms of the measuring unit current at year-end.

Question 6

6. Monetary items consist of

a. Assets and liabilities whose amounts are fixed by contract or otherwise in terms of pesos.
b. Assets and liabilities classified as current.
c. Cash and cash equivalents plus all receivables.
d. Cash, accounts receivable and current liabilities.

Answer 6

a. Assets and liabilities whose amounts are fixed by contract or otherwise in terms of pesos.

Question 7

7. All of the following are monetary, except

a. Accounts payable
b. Accounts receivable
c. Administration cost paid in cash
d. Loan repayment at face value

Answer 7

c. Administration cost paid in cash

Question 8

8. The financial statements in a hyperinflationary economy shall be stated in terms of

a. Historical cost
b. Current cost
c. Fair value
d. Measuring unit current at the end of reporting period

Answer 8

d. Measuring unit current at the end of reporting period

Question 9

9. The gain or loss on the net monetary position in a hyperinflationary economy shall be included in

a. Profit or loss and separately disclosed.
b. Retained earnings
c. Equity
d. Other comprehensive income

Answer 9

a. Profit or loss and separately disclosed.

Question 10

10. In a hyperinflationary economy, nonmonetary items are restated by applying

a. General price index
b. Specific price index
c. Both general price index and specific price index
d. Either general price index or specific price index

Answer 10

a. General price index

Question 11

1. During a period of inflation, an account balance remains constant. With respect to this account, a purchasing power loss will be recognized if the account is a

a. Monetary asset
b. Monetary liability
c. Nonmonetary asset
d. Nonmonetary liability

Answer 11

a. Monetary asset

Question 12

2. During a period of inflation, an account balance remains constant. With respect to this account, a purchasing power gain will be recognized if the account is a

a. Monetary liability
b. Monetary asset
c. Nonmonetary liability
d. Nonmonetary asset

Answer 12

a. Monetary liability

Question 13

3. During a period of deflation in which a liability account balance remains constant, which of the following occurs?

a. A purhasing power loss if the item is a nonmonetary liability.
b. A purchasing power gain if the item is a nonmonetary liability.
c. A purchasing power loss if the item is a monetary liability.
d. A purchasing power gain if the item is a monetary liability.

Answer 13

c. A purchasing power loss if the item is a monetary liability.

Question 14

4. During a period of inflation in which a liability account balance remains constant, which of the following occurs?

a. A purchasing power loss if the item is a nonmonetary liability.
b. A purchasing power gain if the item is a nonmonetary liability.
c. A purchasing power loss if the item is a monetary liability.
d. A purchasing power gain if the item is a monetary liability.

Answer 14

d. A purchasing power gain if the item is a monetary liability.

Question 15

5. During a period of deflation, an entity would have the greatest gain in general purchasing power by holding

a. Cash
b. Property, plant and equipment
c. Finance lease liability
d. Mortgage payable

Answer 15

a. Cash

Question 16

6. Which of the following is classified as nonmonetary?

a. Allowance for doubtful accounts
b. Accumulated depreciation
c. Premium on bonds payable
d. Advances to unconsolidated subsidiaries

Answer 16

b. Accumulated depreciation

Question 17

7. Which of the following is classified as nonmonetary?

a. Warranty liability
b. Accrued expense
c. Unamortized discount on bonds payable
d. Refundable deposit

Answer 17

a. Warranty liability

Question 18

8. Which of the following is classified as nonmonetary?

a. Cash surrender value
b. Long-term receivable
c. Accrued liability on firm purchase commitment
d. Inventory

Answer 18

d. Inventory

Question 19

9. Which of the following is classified as monetary?

a. Goodwill
b. Equipment
c. Patent
d. Allowance for doubtful accounts

Answer 19

d. Allowance for doubtful accounts

Question 20

10. Purchasing power gain or loss results from

a. Monetary asset only
b. Monetary liability only
c. Both monetary asset and monetary liability
d. Nonmonetary asset and nonmonetary liability

Answer 20

c. Both monetary asset and monetary liability

Question 21

1. Financial statements that are expressed under a stable monetary unit are

a. Constant peso financial statements
b. Nominal peso financial statements
c. Current cost financial statements
d. Fair value financial statements

Answer 21

b. Nominal peso financial statements

Question 22

2. A general price level statement of financial position is prepared and presented in terms of

a. The general purchasing power at the latest year-end.
b. The general purchasing power in the base period.
c. The average general purchasing power of the peso.
d. The general purchasing power at the date of issue.

Answer 22

a. The general purchasing power at the latest year-end.

Question 23

3. Which method of reporting attempts to eliminate the effect of the changing value of the peso?

a. Discounted net present value of future cash flows
b. Historical cost restated for change in the price level
c. Replacement cost
d. Exit value

Answer 23

b. Historical cost restated for change in the price level

Question 24

4. The restatement of historical peso financial statements to reflect the general price level change results in presenting assets at

a. Lower of cost or net realizable value
b. Fair value
c. Cost adjusted for purchasing power change
d. Current replacement cost

Answer 24

c. Cost adjusted for purchasing power change

Question 25

5. Which argument in favor of price level adjusted financial statements is not valid?

a. Price level statements use historical cost.
b. Price level statements compare uniform purchasing power among various periods.
c. Price level statements measure current value.
d. Price level statements measure earnings in terms of a common peso.

Answer 25

c. Price level statements measure current value.