hyperinflationary environment

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.