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    E_BW4HANA214 Exam, SAP E_BW4HANA214 Zertifizierungsprüfung & E_BW4HANA214 Demotesten - Championlandzone

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      \KGd assets for the subsidiary.
      C. IAS standards would allow WMC to translate the inflation-indexed value of nonmonetary assets of the Indian subsidiary at the current exchange rate.
      D. The Indian economic environment meets the criteria to be classified as a hyperinflationary economy.
      Answer: A
      Explanation:
      Explanation/Reference:
      Explanation:
      U.S. accounting standards define a hyperinflationary economy as one in which the three-year cumulative inflation rate exceeds 100%. The Indian economy can be characterized as hyperinflationary. The inflation rate over the past three years can be calculated as follows:
      year 1 inflation = [(I + 0.3464) / (1 + 0.020)] - 1 = 32%year 2 inflation = [(I + 0.2915) / (1 + 0.025)1 - 1
      26%
      year 3 inflation = [(1 + 0.2566) / (1 + 0.030)] - 1 = 22%
      cumulative three-year inflation = (1.32)(1.26)(1.22) - 1 = 103%
      U.S. accounting standards allow the use of the temporal method, with the functional currency being the parents reporting currency, when a foreign subsidiary is operating in a hyperinflationary environment. IAS accounting standards allow the parent to translate an inflation-adjusted value of the nonmonetary assets and liabilities of the foreign subsidiary at the current inflation rate, removing most of the effects of high inflation on the value of the nonmonetary assets and liabilities in the reporting currency. In a hyperinflationary environment, the parent company can reduce translation losses by reducing its net monetary assets or increasing its net monetary liabilities. In order to do this, the parent should issue debt denominated in the subsidiary's local currency and invest the proceeds in fixed assets for the subsidiary to use in its operations. (Study Session 6, LOS 23-0

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