If a subsidiary is operating in a highly inflationary economy, how are the financial statements to be restated?
A) Historical rate.
B) Working capital rate.
C) Translation.
D) Remeasurement.
E) Current rate.

Question

Quizplus · Accepted Answer

When a subsidiary operates in a highly inflationary economy, the financial statements must be restated using the remeasurement method. This involves adjusting the subsidiary's financial statements to reflect changes in purchasing power caused by inflation. The remeasurement method uses current exchange rates to restate the subsidiary's financial statements into the parent company's reporting currency. This process includes adjusting assets and liabilities for inflation and recognizing the resulting gains or losses in the income statement. The other methods listed (historical rate, working capital rate, translation, and current rate) are not appropriate for restating financial statements in a highly inflationary economy.

If a Subsidiary Is Operating in a Highly Inflationary Economy