Identify the functional currency and the reporting framework
IAS 29 applies under IFRS when the entity’s functional currency is the currency of a hyperinflationary economy. An Indian group reporting under Ind AS applies Ind AS 29 and Ind AS 21. A subsidiary’s location and the parent’s presentation currency do not, by themselves, determine the subsidiary’s functional currency. Keep the statutory restatement and translation separate from any management constant-currency measure.
Purchasing-power units matter. If general prices increase by 210% from January to December, 100 million pesos measured at January prices corresponds to 310 million pesos in December units. Comparing a January machine purchase at a nominal 100 million pesos with December sales of 150 million pesos does not establish a profit or return; those amounts are measured at different dates and the asset purchase is not itself the cost of those sales. This is a hypothetical index example.
Assess the indicators together
| Indicator in paragraph 3 | Evidence to look for |
|---|---|
| Savings held in non-monetary assets or stable foreign currencies | Whether local currency amounts are quickly invested to preserve purchasing power. |
| Monetary amounts commonly considered in a stable foreign currency | Whether prices and other amounts are quoted by reference to that currency. |
| Credit prices compensate for purchasing-power loss | Actual credit terms, including short-term contracts. |
| Interest rates, wages and prices are linked to a price index | Contracts, indexation terms and the indices actually used. |
| Cumulative inflation over three years approaches or exceeds 100% | A consistent official price-index series and documented computation. The figure is an indicator, with no automatic threshold. |
Document the evidence and conclusion for the relevant reporting period and currency. An isolated annual inflation figure, a country list or the judgement of an outside group does not replace the assessment. Ind AS 29 and IAS 29 apply from the beginning of the reporting period in which hyperinflation is identified, subject to their first-application requirements.
Restate the statements to closing purchasing power
| Item | Treatment | Control |
|---|---|---|
| Monetary assets and liabilities | Do not restate cash and other amounts already expressed in current monetary units. Adjust items contractually linked to price changes in accordance with the agreement. | Reconcile the gain or loss on the net monetary position separately. |
| Non-monetary assets and liabilities | Restate relevant historical carrying amounts from their underlying dates. Items already stated at a current amount at the reporting date, such as a current fair value or net realisable value, are not indexed again. | Check revaluation dates, accumulated depreciation, impairment and inventory measurement under the applicable standards. |
| Income, expense and cash flows | Express amounts in the measuring unit current at the closing date. Restate income and expenses from when they were initially recorded. | Reconcile the timing of large or uneven flows and avoid double-counting entries already derived from restated amounts. |
| Equity and comparatives | Apply the first-application and subsequent equity rules and present relevant local-currency comparatives in closing measuring units. | Apply the separate comparative exception when translating into a non-hyperinflationary presentation currency. |
Use a general price index that reflects changes in purchasing power. Use a consistent series, base and date mapping and document the index source and any estimation. If the index at acquisition is 120 and the closing index is 360, the factor is 3.00 and a machine’s gross historical cost of 10 million currency units becomes 30 million before depreciation or impairment. This gross calculation does not fix the net carrying amount.
Compute the result on the net monetary position
Unindexed net monetary assets generally lose purchasing power during inflation; unindexed net monetary liabilities generally generate a purchasing-power gain. If prices double, a nominal bank balance of ₹10 lakh that remains unchanged at year-end has the same purchasing power as ₹5 lakh at the start, a 50% reduction measured in starting units. Under paragraph 9, include the gain or loss in profit or loss and disclose it separately. Use a supported monetary exposure or reconcile the amount from the relevant restatements and contractual adjustments under paragraphs 27–28.
Translate after restatement
For a hyperinflationary functional currency translated to a non-hyperinflationary presentation currency, first restate the foreign operation under Ind AS 29 or IAS 29. Translate the current-period assets, liabilities, equity, income and expenses at the closing rate under Ind AS 21 or IAS 21, as applicable. Prior-period comparatives in the stable presentation currency remain the amounts presented as current-year amounts in the prior financial statements; they are not updated for subsequent prices or rates under paragraph 42(b). A monthly average rate does not replace the current-period closing rate in this translation method. Check the applicable exchangeability guidance if the currency cannot be exchanged.
Seven worked illustrations
Unless identified as official statistics, figures, timing, entities and exchange rates are hypothetical. No example classifies a country for the current reporting period.
1. Argentina: compute a historical three-year indicator
For a December 2023 assessment, take the rounded INDEC national index values of 385.9 in December 2020, 582.5 in December 2021, 1,134.6 in December 2022 and 3,533.2 in December 2023. Divide the last index by the first, subtract one and multiply by 100: (3,533.2 ÷ 385.9 − 1) × 100 = approximately 815.6%. INDEC separately reported 211.4% inflation during 2023 alone. These are different measurement periods. A three-year result of 815.6% is strong evidence for the quantitative indicator; document the other indicators and timing before reaching the accounting conclusion.
2. Turkish lira assets: restate gross cost and depreciation
Use hypothetical acquisition indices of 720 in January 2022 and 950 in July 2022 and a closing index of 1,850 in December 2023. Assume both assets were available for use when acquired, with nil residual values. The warehouse has two years of straight-line depreciation at 5% annually; machinery has 1.5 years at 15% annually. The 10% and 22.5% accumulated depreciation rates reflect elapsed use, not total useful lives.
| Asset | Historical cost, million TRY | Index factor | Restated gross, million TRY | Restated net, million TRY |
|---|---|---|---|---|
| Warehouse | 20.00 | 1,850 ÷ 720 ≈ 2.569 | 51.39 | 46.25 |
| Machinery | 15.00 | 1,850 ÷ 950 ≈ 1.947 | 29.21 | 22.64 |
| Total | 35.00 | — | 80.60 | 68.89 |
Use unrounded factors in the calculation. Historical net book value is TRY 18 million + TRY 11.625 million = TRY 29.625 million. Restated net book value is about TRY 68.89 million, an increase of about TRY 39.26 million before any impairment or other measurement adjustment.
3. Egyptian pound illustration: reconcile a monetary loss
Assume the reporting framework requires hyperinflation restatement. Use EGP 10 million opening net monetary assets at index 200, EGP 24 million increases and EGP 18 million decreases. For the simplified calculation, assume a representative index of 240 for both sets of flows. The closing index of 280 is 40% above 200. Nominal closing net monetary assets are EGP 16 million. Expressed in closing units, the opening amount is 10 × 280 ÷ 200 = EGP 14 million, increases are 24 × 280 ÷ 240 = EGP 28 million, and decreases are 18 × 280 ÷ 240 = EGP 21 million. The reference position is EGP 21 million, so the simplified monetary loss is 16 − 21 = EGP 5 million. Reperform with dated flows if the assumed representative index does not reflect actual exposure.
4. Transaction-date revenue restatement
TRY 5 million billed at index 1,200 and TRY 8 million billed at 1,600 are restated at closing index 1,800. The restated amounts are TRY 7.50 million and TRY 9 million, totalling TRY 16.50 million versus TRY 13 million nominal. Use the accounting recognition dates in the live working.
5. Equity and opening retained earnings
If a contribution of 1 million currency units was made in 2018 at index 50 and the relevant restatement index is 5,000, the factor is 100 and the illustrative restated amount is 100 million. This is a 100-fold price level, or a 9,900% increase. At the beginning of the first period of application, restate equity components other than retained earnings and any prior revaluation surplus from their contribution or other origination dates as required. Eliminate a prior revaluation surplus and derive opening restated retained earnings from the other restated amounts. For later periods, restate equity components from the start of the period or the contribution date, if later, as applicable.
6. Translate restated profit into INR
Assume operating profit of 150 million pesos is already restated into closing measuring units. With an exchangeable closing rate of ₹0.10 per peso and a non-hyperinflationary INR presentation currency, it translates to ₹15 million, or ₹1.50 crore. The illustrative average rate of ₹0.22 would give ₹33 million, or ₹3.30 crore, but is not the rate for this current-period translation.
7. Cessation
A hypothetical fall in cumulative three-year inflation from 115% to 45%, a drop of 70 percentage points, is one piece of evidence. If the overall assessment establishes that the economy ceased to be hyperinflationary, stop applying IAS 29 or Ind AS 29 and use the amounts in the measuring unit current at the end of the previous reporting period as the basis for subsequent carrying amounts. Do not unwind previously recognised restatements solely because hyperinflation ended.
Build a repeatable reporting file
Retain the dated currency and inflation assessment, index evidence, chart of accounts classification, indexed asset and equity roll-forwards, restated cash flows and comparatives, monetary result reconciliation, tax working and translation checks. Reconcile each amount back to the local trial balance. Document the fact of restatement, the measurement basis, the price index and its movement as required by the standard.
Frequently asked questions
Does 100% over three years automatically trigger restatement?
No. Doubling over three years is equivalent to about 25.99% annually if the rate is constant. Use the indicator with the other evidence and document the professional judgement.
What if the indexed amount exceeds recoverable amount?
Apply the appropriate measurement rule. For PPE, if an indexed carrying amount of 50 million exceeds a supported recoverable amount of 35 million, the reduction is 15 million; apply Ind AS 36 or IAS 36 to recognition and presentation. For inventory, apply the inventory standard’s net realisable value test, rather than the PPE impairment model.
Does restatement always create a deferred tax liability in profit or loss?
No. Compare the restated carrying amount with the applicable tax base and apply the tax standard’s recognition and measurement rules. Consider whether the underlying item was recognised in profit or loss, other comprehensive income or equity. For the opening balance on first application, apply the specific deferred tax guidance in Ind AS 29 Appendix A or IFRIC 7, as applicable.
Why is the average exchange rate not used in this illustration?
The current-period figures have been restated to closing purchasing power; paragraph 42 then requires the closing exchange rate for this translation. The prior comparative rule is separate.
Can an entity elect to restate when annual inflation is 15%?
Application depends on whether the functional currency is that of a hyperinflationary economy. A single annual rate does not establish or rule out that condition, and the standard is not an elective presentation method.
What can a reporting system check?
A system can reconcile index dates, classifications, roll-forwards and exchange-rate inputs. Document and review judgements, source data, calculations and adjustments before relying on any consolidated package.
Sources
- MCA: Ind AS 29, including Appendix A
- MCA: Ind AS 21, paragraphs 39–43
- MCA: Ind AS 12, including paragraph 61A
- MCA: Ind AS 36, impairment and recoverable amount
- IFRS Foundation: IAS 29, full text
- IFRS Foundation: IAS 21, including paragraphs 42–43
- IFRS Foundation: IFRIC 7, first application and deferred tax
- INDEC Informa, January 2022: national CPI for December 2020 and December 2021
- INDEC Informa, January 2023: national CPI for December 2022
- INDEC Informa, January 2024: national CPI for December 2023
- INDEC: December 2023 national CPI release, Argentina