Nov.

12

Dec. 1

Dec. 12

Dec. 31

AR (Dong)
Dec. 1 391.5 Jan. 10
Decrease 121.5
Dec. 31 270
Increase 13.5
Jan. 10 283.5

#1. 391.50
#2. 121.5 loss
#3. Zero (no translation)
#4. 270
#5. 13.50 gain
 Lechon Company (Php) Bahn Mi Company (Dong)
No entry No entry

AR - Dong 391.50 Purchases 135,000.00

Sales 391.50 AP - Dong 135,000.00
(135,000 dong x P0.0029) (135,000 dong)

No entry No entry

Forex Loss 121.50 No entry

AR - Dong 121.50
[135,000 x (0.002 - 0.0029)]

AR - Dong 13.50 No entry

Forex Gain 13.50
[135,000 x (0.0021 - 0.002)]

Cash 283.50 AP - Dong 135,000.00

AR - Dong 283.50 Cash 135,000.00
 Sept. 12

Nov. 21

Dec. 31

We are purchasing/buying (yung rate baliktad) Jan. 26

ASK = SELLING YES
BID = BUYING

We need AUSD, so we buy from the bank (bank will sell us)
 Tarsier Kangaroo
No entry No entry

Purchases 1,870,000.00 AR - AUSD 50,000.00

AP - AUSD 1,870,000.00 Sales 50,000.00
(50,000 AUSD x 37.40)

Forex Loss 3,500.00 No entry

AP - AUSD 3,500.00
[50,000 x (37.47 - 37.40)]

Forex Loss 2,500.00 No entry

AP - AUSD 2,500.00
[50,000 x (37.52 - 37.47)]

AP - AUSD 1,876,000.00 Cash 50,000.00

Cash 1,876,000.00 AR - AUSD 50,000.00
[50,000 x 37.52]
Payable - Rupees
Purchase 41,946,308.72
Loss 570,698.08 NOTE: DO NOT USE THE SHORTCUT IF INDIRECT
EORP 42,517,006.80

[62.5M x (1/1.49 - 1/1.47)]

TCUT IF INDIRECT
This is not a hedge because it is for speculation (increases the risk)

Forward rate = Spot rate or Current rate + Adjustment for the future

On March 30, 2021 (settlement date), there is no future anymore

Forward rate = Spot rate + Adjustment for the future (0)
Forward rate = Spot rate + 0
 Gross method
12/1/2020 Forward Contract Receivable - $ 6,825,000.00
Forward Contract Payable - Peso 6,825,000.00
We will receive/buy USD by paying Peso
(150,000 USD x P45.50 per USD)

12/31/2020 FCR - $ 150,000.00

Forex Gain/Gain (forward) 150,000.00
[150,000 USD x (46.5 - 45.50)]

Gross method: to compute derivative asset

FCR - $ (150,000 x 46.5) 6,975,000.00
FCP - P (150,000 x historical 45.50) (6,825,000.00)
Derivative Asset (Liability) 150,000.00

3/30/2021 Forex Loss 210,000.00

FCR - $ 210,000.00
[150,000 USD x (45.10 - 46.5)]

FCP - Peso 6,825,000.00

Cash 6,825,000.00

Cash 6,765,000.00
FCR - $ 6,765,000.00
[150,000 USD x 45.10]
 Net method
No entry

Derivative Asset 150,000.00

Forex Gain/Gain (derivative) 150,000.00

Forex Loss 210,000.00

Derivative Asset 150,000.00
Derivative Liability 60,000.00

Derivative Liability 60,000.00

Cash 60,000.00

Cash payment - gross (6,825,000.00)

Cash receipt - gross 6,765,000.00
Net receipt (payment) (60,000.00)
 11/1/2020

12/31/2020

1/30/2021

If the loss of hedged item is fully offset by gain of hedging instrument = perfect hedge
 Hedged Item (Item being hedged) Hedging Instrument (item used to hedge)
Purchases 5,968,500.00 FCR - Euros 5,819,000.00
Accounts Payable - Euros 5,968,500.00 FCP - Pesos
(115,000 Euros x P51.90) (115,000 Euros x 50.6)

Accounts Payable - Euros 138,000.00 Forex Loss 23,000.00

Forex Gain 138,000.00 FCR - Euros
[115,000 x (50.7 - 51.9)] [115,000 x (50.4 - 50.6)]

Accounts Payable - Euros 69,000.00 Forex Loss 34,500.00

Forex Gain 69,000.00 FCR - Euros
[115,000 x (50.1 - 50.7)] [115,000 x (50.1 - 50.4)]

Accounts Payable - Euros 5,761,500.00 FCP - Pesos 5,819,000.00

Cash 5,761,500.00 Cash
[115,000 x 50.1] To pay the forward contract in pesos

Cash 5,761,500.00
FCR - Euros
To receive the Euros under the forward contract
Received amount is used to pay the AP - euros
ent (item used to hedge)

5,819,000.00

Forex gain - hedged 138,000.00

23,000.00 Forex loss - hedging (23,000.00)
Net gain - activity 115,000.00

Forex gain - hedged 69,000.00

34,500.00 Forex loss - hedging (34,500.00)
Net gain - activity 34,500.00

5,819,000.00
contract in pesos

5,761,500.00
under the forward contract
used to pay the AP - euros
Firm commitment:
Example: On December 2, 2021, ABC Company commited to purchase a special equipment from China to be delivered on Janu
Spot rate as of commitment is 7.41
Year-end spot rate is 7.25
Spot rate as of January 10 is 7.30

ABC entered into a forward contract to hedge the possible foreign currency exposure due to the firm commitment (to buy yu
Forward contract rates are as follows:
12/2/2021 = P7.50
12/31/2021 = P7.31
1/10/2022 = P7.30

Hedged Item Hedging instrument

12/1/2021 No entry FCR - Yuan 750,000.00
FCP - Peso
Since we will buy using yuan, we need to get yuan f
(100,000 x 7.50)

12/31/2021 Firm Commitment 19,000.00 Forex Loss 19,000.00

Forex Gain 19,000.00 FCR - Yuan
If firm commitment, perfect hedge (100,000 x (7.50-7.31))

1/10/2022 Firm Commitment 1,000.00 Forex Loss 1,000.00

Forex Gain 1,000.00 FCR - Yuan

Equipment 730,000.00 FCP - Peso 750,000.00

Cash 730,000.00 Cash
(100,000 x 7.3)
Cash 730,000.00
Equipment 20,000.00 FCR - Yuan
Firm Commitment 20,000.00 (100,000 x 7.30)
(19,000 + 1,000)

How much is the total cost of the equipment?

Cost = P750,000 (notional amount of 100,000 yuan x initial forward rate 7.50) because perfect hedge
nt from China to be delivered on January 10, 2021. The contract price is 100,000 yuan

to the firm commitment (to buy yuan to pay China)

ing instrument

750,000.00
uy using yuan, we need to get yuan from the bank

19,000.00

1,000.00

750,000.00

730,000.00

) because perfect hedge

Assets 8,277,500.00 Liabilities 2,257,500.00 Translation loss of P424,000 as of 12/31
OCI 424,000.00 Equity 6,444,000.00
8,701,500.00 8,701,500.00

Total assets @ USD 192,500.00 RE, beg. 86,000.00

Total liab @ USD (52,500.00) NI 15,000.00
Equity @ USD 140,000.00 Dividends (10,000.00)
Share capital (35,000.00) RE, end 91,000.00
Share premium (14,000.00)
RE, end @ USD 91,000.00

Alternative:
USD Rate Peso
OSC 35,000.00 1,570,000.00 Computed earlier
SP 14,000.00 625,000.00 Computed earlier
RE, beg 86,000.00 3,999,000.00
Equity, beg 135,000.00 6,194,000.00
NI 15,000.00 44.00 660,000.00
Dividend (10,000.00) 41.00 (410,000.00)
Equity, end 140,000.00 6,444,000.00 Equity @ historical
Closing rate 43.00
Equity @ closing 6,020,000.00 Decrease of P424,000 (translation loss as of 12/31/2020)

To compute the change in OCI

USD Rate Peso
Equity, beg 135,000.00 42.00 5,670,000.00 At closing rate last year (includes translation last ye
NI 15,000.00 44.00 660,000.00
Dividends (10,000.00) 41.00 (410,000.00)
Equity, end 140,000.00 5,920,000.00 Includes translation last year
Closing rate 43.00
Equity @ closing 6,020,000.00 OCI increased by P100,000 (for 2020)
 $
Total assets 192,500.00
Total liabilities 52,500.00

OSC
Issued 1/1/2015 30,000.00
Issued 1/1/2018 5,000.00

SP
Issued 1/1/2015 9,000.00
Issued 1/1/2018 5,000.00

OSC
SP
Contributed capital

Alternative solution:
Issued 1/1/2015 39,000.00
Issued 1/1/2018 10,000.00

Retained earnings
12/31/2019 or 1/1/2020 ?
Net income for 2020 15,000.00
Dividend declared (10,000.00)
Translated RE

Contributed Capital
of P424,000 as of 12/31/2020 RE
Translated equity, without translation adjustment
f 12/31/2020)

cludes translation last year)

 Applicable rate Peso
43.00 8,277,500.00
43.00 2,257,500.00

45.00 1,350,000.00
44.00 220,000.00
1,570,000.00

45.00 405,000.00
44.00 220,000.00
625,000.00

1,570,000.00
625,000.00
2,195,000.00

45.00 1,755,000.00
44.00 440,000.00
2,195,000.00

3,999,000.00
44.00 660,000.00
41.00 (410,000.00) For dividends, use date of declaration
4,249,000.00

2,195,000.00
4,249,000.00
nslation adjustment 6,444,000.00