DRILL PROBLEMS

Basic Forex Accounting

For each of the following cases, assume the following exchange rates for the Peso:

Date Peso-Dollar Exchange Rate Yen-Peso Exchange Rate

November 1, 2009 P 40 ¥2.0
December 31 2009 P 45 ¥2.5
January 31, 2010 P 38 ¥1.8

Journalize each of the following transactions:

ABC, Inc. exported various raw materials to Japan for ¥5,000,000 on November 1, 2009. Settlement is
due on January 31, 2010.

ABC, Inc. imported various raw materials from an American supplier for $100,000 on November 1, 2009.
Settlement is due on January 31, 2010.

ABC, Inc. exported various raw materials to a Japanese customer for $100,000 on November 1, 2009.
Settlement is due on January 31, 2010.

ABC, Inc. imported various raw materials from a Japanese supplier for P5,000,000 on November 1, 2009.
Settlement is due on January 31, 2010.

ILLUSTRATIVES

Case A: Monetary or Non-monetary

Determine whether the following are monetary (M) or non-monetary (N).
Investment in equity securities ____ 13. Advances to suppliers ____
Investment in bonds: 14. Discount on bonds payable ____
Held to maturity ____ 15. Intangible assets ____
Trading and AFS ____ 16. Goodwill ____
Accounts and notes receivable ____ 17. Accounts/Notes payable ____
Allowance for doubtful accounts ____ 18. Accrued expenses ____
Inventories ____ 19. Liability for refundable deposit ____
Advances to employees ____ 20. Advances from customers ____
Prepaid insurance, taxes and rent ____ 21. Deferred income ____
Prepaid interest ____ 22. Preferred stock ____
Receivable under finance lease ____ 23. Shares of stock ____
Special deposits which are recoverable ____ 24. Retained earnings ____
Property, plant and equipment ____ 25. Cash surrender value
Accumulated depreciation ____

REVIEWEE SELF-TEST:
An entity has a free choice of which of the following?
functional currency b. presentation currency c. Either A or B d. Both A and B
If P41 can be exchanged for $1, the direct and indirect exchange rate quotations, respectively, are:
P41 and $1 b. P41 and $.024 c. $.024 and P41 d. P1
and $.024

Units of currency held, and assets and liabilities to be received or paid in a fixed or determinable number
of units of currency
Financial item b. Monetary item c. Non-monetary item d. Intangible item

Monetary item do not include

Cash b. receivables c. loans d. Deferred income

Non-monetary item do not include

Goodwill b. Inventories c. Intangible assets d. Payables

Exchange differences in translating foreign currency items is recognized as part of

Profit or loss b. Equity c. Either A or B d. Both A or B

Subsequent to initial recognition, foreign currency monetary items should be translated at

closing rate b. historical rate c. average rate d. date at transaction date

Change in functional currency is treated

retrospectively b. prospectively c. Both A and B d. as disclosure.

Translation into the presentation currency can be undertaken when

an entity wants to present its financial statement in another currency
the group presentation currency is different from the foreign currency of the subsidiary.
Both A and B
Neither A nor B

Forex translation gain or loss arising from advances to a foreign subsidiary which forms part of the
parent’s net investment therein is included in
Profit or loss b. Other comprehensive income c. Both A and B d. Neither A nor B

Following a change in functional currency, all amounts are retranslated into the new functional currency
At the date of change
Effectively in the period end of the change
Retrospectively as if the new currency has always been the functional currency
None of these.

An entity acquires a foreign subsidiary on 15 August 2007. The goodwill arising on the acquisition is
$100,000. At the date of acquisition the exchange rate into the parent’s functional currency is P50:$1. At
the parent entity’s year end the exchange rate is P48:$1. The goodwill shall be presented in the
consolidated financial statement at
P4.8M b. P4.9M c. P5.0M d. P0

Exchange gain or loss arising from the re-translation of goodwill in acquiring a subsidiary is
included as part of other comprehensive income
included in profit or loss
adjusted to the translated amounts of assets and liabilities
ignored.

An entity will primarily generate and expend cash in one primary economic environment. According to
PAS21, the correct term for the currency of this primary economic environment is the
presentation currency c. reporting currency
functional currency d. foreign currency

According to PAS21 The effects of changes in foreign exchange rates, at which rate should an entity's
non-current assets be translated when its functional currency figures are being translated into a different
presentation currency?
The historical exchange rate c. The average rate
The closing rate d. The spot exchange rate

According to PAS21 The effects of changes in foreign exchange rates, exchange differences should be
recognised either in profit or loss or in other comprehensive income. Are the following statements about
the recognition of exchange differences in respect of foreign currency transactions reported in an entity's
functional currency true or false according to PAS21?
Any exchange difference on the settlement of a monetary item should be recognised in profit or loss.
Any exchange difference on the translation of a monetary item at a rate different to that used at initial
recognition should be recognised in other comprehensive income.
Statement (1) Statement (2)
False False
False True
True False
True True

The Wiltord Company acquired a foreign subsidiary on 15 August 20X7. Goodwill arising on the
acquisition was $175,000. Consolidated financial statements are prepared at the year end of 31 December
20X7 requiring the translation of all foreign operations' results into the presentation currency of CU. The
following rates of exchange have been identified:
Rate at 15 August 20X7 $1.321 : CU1
Rate at 31 December 20X7 $1.298 : CU1
Average rate for the year ended 31 December 20X7 $1.302 : CU1
Average rate for the period from 15 August to 31 December 20X7 $1.292 : CU1

According to PAS21 The effects of changes in foreign exchange rates, at what amount should the
goodwill be measured in the consolidated statement of financial position?
CU134,409 c. CU134,823
CU135,449 d. CU312,475

The Nehupo Company acquired The Motonua Company, a foreign subsidiary, on 10 September 20X7.
The fair value of the assets of Motonua was the same as their carrying amount except for land where the
fair value was $50,000 greater than carrying amount. This fair value adjustment has not been recognised
in the separate financial statements of Motonua. Consolidated financial statements are prepared at the
year end of 31 December 20X7 requiring the translation of all foreign operations' results into the
presentation currency of CU. The following rates of exchange have been identified:

Rate at 10 September 20X7 $1.62 : CU1

Rate at 31 December 20X7 $1.56 : CU1
Average rate for the year ended 31 December 20X7 $1.60 : CU1
 Average rate for the period from 10 September to 31 December 20X7 $1.58 : CU1

According to PAS21 The effects of changes in foreign exchange rates, what fair value adjustment is
required to the carrying amount of land in the consolidated statement of financial position?
CU30,864 c. CU31,250
CU32,051 d. CU31,646

The Witley Company has the CU as its functional currency. On 16 October 20X7 Witley ordered some
inventory from a foreign supplier and agreed a purchase price of $160,000. The inventory was received
on 15 November 20X7. At 31 December 20X7 the inventory remained on hand and the trade payable
balance for the inventory purchase remained outstanding. The supplier was paid on 27 January 20X8 and
the inventory was sold on 31 January 20X6. The following information about exchange rates is available:

16 October 20X7 CU1 = $2.60

15 November 20X7 CU1 = $2.50
31 December 20X7 CU1 = $2.40
27 January 20X8 CU1 = $2.25

According to PAS21 The effect of changes in foreign exchange rates, at what amount should the trade
payable balance due to the supplier be presented in the statement of financial position of Witley at 31
December 20X7?
CU61,538 c. P66,667
CU64,000 d. P71,111

Celestica ordered an item of equipment for $10,000 from a foreign supplier when the spot rate for a dollar
was P40. The equipment was delivered when the spot rate was 43.50. At the 12/31/07 balance sheet date,
the spot rate for a dollar was P41. When payment was made on February 14, 2008, the spot rate for a
dollar was P40. What is the foreign exchange gain to be reported on the 2008 financial statement?
P25,000 b. P0 c. P35,000 d. P10,000

Herma Corporation buys goods from Japanee, Inc. in Japan at terms n/30. The contract requires
settlement in Yen. The unadjusted trial balance of Herma Corporation reflects a payable representing
purchase of goods worth P400,000 when the Japanese Yen was selling for ¥2 for P1. What should be the
foreign exchange transaction gain or loss to be included in an intervening income statement if the spot
rate at the intervening balance sheet is P.40 for ¥1?
P80,000 loss b. P80,000 gain c. P120,000 gain d. P120,000 loss

XFH, Inc. purchased an equipment to a British manufacturer for P2,000,000. The spot rate at the time of
transaction was P125 for £1. At the 12/31/7 balance sheet date, the spot rate was P135 for £1. Upon
payment, the spot rate was P132 for £1. What is the gain or loss to be reported at 12/31/8 income
statement?
P0 b. P160,000 c. P48,000 d. P112,000

RECENT CPALE QUESTIONS

Lastikman Company, a local company, bought raw materials as ingredients in its products from
Superman Corporation, a US company, for 35,000 US Dollars in 2020. Pertinent exchange rates relating
to this transaction are as follows:
 Buying Rate Selling Rate
Receipt of order P47.10 P47.20
Date of shipment 47.25 47.45
Balance sheet date 49.50 49.60
Settlement date 49.45 49.50

What is the foreign exchange gain or loss of Lastikman Company for 2020? (May. 2019 CPALE)

78,750 loss
75,250 loss
78,750 gain
75,250 gain
The Nehupo Company acquired The Motonua, a foreign subsidiary, on 10 September 20x7. The fair
value of the assets of Motonua was the same as their carrying amount except for land where the fair value
was $50,000 greater that carrying amount. The fair value adjustments has not been recognized in the
separate financial statements of Motonua Consolidated financia statements are prepared at the year end of
31 December 20x7 requiring the translation of all foreign operations’ results into the presentation current
of CU. The following rates of exchange have been identified:
Rate at 10 September 20x7 $1.62: CU1
Rate at 31 September 20x7 $1.56: CU1
Average rate for the year ended 31 December 20x7 $1.60: CU1
Average rate for the period from 10 September to 31 December 20x7 $1.58: CU1
According to PAS21 The effects of changes in foreign exchange rates, what fair value adjustment is
required to the carrying amount of the land in the consolidated statement of financial position? (May.
2019 CPALE)
CU30,864
CU32,051
CU31,250
CU31,646
The Wiltoird Company acquired a foreign subsidiary on 15 August 20x7. Goodwill arising on the
acquisition was $175,000. Consolidated financial statements are prepared at the year end of 31 December
20x7 requiring the translation of all foreign operations’ results into presentation currency of CU. The
following rates of exchange has been identified
Rate at 15 August 20x7 $1.321: CU1
Rate at 31 December 20x7 $1.298: CU1
Average rate for the year ended 31 December 20x7 $1.302 CU1
Average rate for the period from 15 August to 31 December 20x7 $1.292: CU1

According to PAS21 The effects of changes in foreign exchange rates, at what amount of goodwill be
measured in the consolidated statement of financial position? (May. 2019 CPALE)
CU134,409
CU135,449
CU134,823
CU312,475
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