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In Venezuela the rate of inflation exceeds 100% annually and the currency (bolivar) has devalued accordingly....

  1. In Venezuela the rate of inflation exceeds 100% annually and the currency (bolivar) has devalued accordingly. Many US firms have assets in Venezuela that are carried on their balance sheets at historical cost. How would FASB require that these firms record the impact of this inflation and devaluation in the financial statements they prepare for their shareholders in the US?
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Answer #1

As per prudent accounting practices, the assets should be tested for impairment and if there is a substantial revaluation of the assets, then these should be impaired to show the correct current market value.

Such a transaction would involve booking additional expense in the form of impairment loss in the Profit and Loss statement and reducing the value of the Asset to that extent.

For example, if the asset in Venezuela was recorded at $1000 and due to the devaluation of the local currency, the fair market value is $500 now, then there should be an asset impairment loss to the extent of $500 and the asset should be reflected on balance sheet at $500 only.

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