FS Translation Asynchronous Activity

2nd Term SY 2021-2022

Problem 1
On December 31, 2021 a foreign subsidiary in Hongkong submitted the following condensed statement
of financial position stated in foreign currency:

Hongkong Dollar
Total assets 100,000
Total liabilities 20,000
Common stock 50,000
Retained earnings, 12/31 30,000

The exchange rates are:

Current rate P7.40
Historical rate P7.10
Weighted average rate P7.00

Assuming that the retained earnings of the subsidiary on December 31, 2021 translated to Philippine Peso
is P212,000. What amount of Cumulative Translation Adjustment is to be reported as other
comprehensive income on December 31, 2021?

Problem 2
The subsidiary in Japan of Manila Company, a Philippine enterprise has plant assets with a cost of
3,600,000 yen on December 31, 2021. Of this amount, plant assets with a cost of 2,400,000 yen were
acquired in 2019 when the exchange rate was 1 yen = P0.625; and plant assets with a cost of 1,200,000
yen were acquired in 2020 when the exchange rate was 1 yen = P0.556.The exchange rate on December
31, 2021 was 1 yen = P0.500, and the weighted average rate for 2021 was 1 yen = P0.521. The Japanese
subsidiary depreciates plant assets by the straight line method over a 10 years economic life with no
residual value.

If the subsidiary's foreign operation is integrated with parent's operation, what is the 2021 depreciation
expense for the Japanese subsidiary in Philippine peso for the translated income statement?
Hedging Asynchronous Activity
2nd Term SY 2021-2022

Forward Exchange Contract

Problem 1
On December 12, 2021, Boracay Company entered into two forward exchange contracts, each to purchase
100,000 Hongkong dollars in 90 days. The relevant exchange rates are as follows:

Spot Rate Forward Rate

December 12, 2021 P8.80 9.00
December 31, 2021 9.80 9.30

a. Boracay entered into the first forward contract for speculation. At December 31, 2021, what
amount of foreign exchange gain (loss) should Boracay in the statement of comprehensive income
from this forward contract?

Problem 2
On July 1, 2011, Magnolia Company purchases 1,000 pounds of Swiss chocolate for 50,000 Swiss francs,
payable in 60 days. On July 1, a Swiss franc is worth P27.29; by August 30, the day of payment, the Swiss
franc is worth P27.00. The 60-day forward rate on July 1 is 1 Swiss franc = P28.00. How much should
Magnolia Company should record the cost of the chocolate?

Option Contract

Problem 3
On June 1, 2021 Jenna Corporation (a Pilipino company) sold pool cues to a customer in Thailand for
100,000 Baht when the spot rate is P1.50 per Baht. The pool cues are to be paid on September 1, 2021.
On June 1, Jenna Corporation acquires a three-month option to sell 100,000 Baht. The strike price is PI.50
and the premium is P.05 per unit. On September 1,2021 Jenne receives 100,000 Baht in settlement of the
pool cues. The spot rate at that date is P1.43 per Baht. What is the amount that Jenna would report in
income as a result of this transactions?

Problem 4
On January 2, 2021, Hershey Co. enters into a call option contract with an investment company. This
contract gives Hershey the option to purchase 10,000 shares of Petrol Co. stock at PI00 per share. The
option expires on May 31, 2021. Petrol shares are traded at PI00 per share on January 2, 2021 at which
time Hershey pays PI0,000 for the call option. The price per share of Petrol stock is P120 on May 31, 2021,
and the time value of the option has not changed. If the interest rate on January 1, 2022 is 8%, what
amount would Canary receive (pay) from (to) Crown?