True

• Hedging a domestic company’s budgeted import purchases to the extent of orders placed could
be hedges of firm commitments.
• Contributions that create term endowments are classified as increasing temporarily restricted
net assets.
• A group is a collection of entities, where one, the parent, controls the activities of the others, its
subsidiaries.
• When the functional currency is the foreign entity’s currency, exchange rate changes do not have
immediate impact on the cash flows of the parent.
• A domestic importer whose transactions are in foreign currency has risk exposure that the
foreign currency will strengthen
• A domestic importer whose transactions are in foreign currency has risk exposure that the
foreign currency will strengthen.
• According to IAS 21, The Effects of Changes in Foreign Exchange Rates, an entity’s noncurrent
assets are translated using the closing (current) rate when its functional currency figures are
being translated into different presentation currency.
• For purposes of consolidation, unrealized profits and losses (on inventories and property, plant
and equipment) remaining should be eliminated.
• Pledges are recorded as revenues when a promise to give is non-revocable and unconditional.
• Hedging a forecasted transaction is a cash flow hedge.
• Maintenance and other operating expenses (MOOE) includes expenses necessary for the regular
operations of the agency like travelling expenses, training and seminar expenses, utilities, and
basic pay and allowances of the agency’s personnel.
• The Philippine peso is strengthening; as a result, the direct exchange rate will decrease.

False
• The Philippine peso is strengthening; as a result, the direct exchange rate will decrease.
• A business combination in which a supplier of raw materials is acquired is a conglomerate
combination.
• On the consolidated balance sheet, consolidated stockholders’ equity is greater than the
parent’s stockholder equity.
• If one Taiwanese dollar can be exchanged for P1.025, the fraction for computing indirect
quotation of exchange rate expressed in Taiwanese currency is 1.00/0.975.
 • Upstream sales from the subsidiary to the parent company always result in unrealized gains or
losses.
• Revenue from exchange transactions in government accounting shall be measured at fair value
of the considerations given up.
• Hedging budgeted export sales is a hedge of a firm commitment transaction.
• On the financial statements of a not-for-profit, the term “fund balance” has been replaced with
the term net equity.
• All foreign exchange forwards are valued using the change in the spot rate.
• The definition of contributions includes both reciprocal and nonreciprocal transfers.
• Assuming that a foreign entity is deemed to be operating in an environment dominated by the
local currency, the entity’s assets are translated using the historical rate.
• In years subsequent to the year of acquisition, an entry to establish reciprocity is made under
the equity method.
• Purchasing power parity theory affects the price of a currency in either the short or the long run.
• Assuming that a foreign entity is deemed to be operating in an environment dominated by the
local currency, the entity’s capital stock is translated using the historical rate.
• Intercompany sale of property, plant and equipment from a parent to one of its subsidiaries are
referred to as upstream sales.
• Recognition of revenue from non-exchange transactions by all government agencies shall apply
the cash basis of accounting.
• In a business combination accounted for as purchase, registration fees for equity securities
issued should be included in the determination of net income of the combined corporation.
• Under the temporal method, monetary assets and liabilities are translated by using the exchange
rate existing at the date the transaction occurred.
• The subjects of government accounting include the national government, local government
units, government owned and controlled corporations and not-for-profit entities.
• All foreign exchange forwards are valued using the change in the spot rate.
• In preparing a combined financial statements, unrealized profits from transactions between a
home office and its branch are not necessarily eliminated.

MCQ

1. In the preparation of a consolidated statements work paper, dividend income recognized by a parent
company for dividends distributed by its subsidiary is
a. Included with parent company income from other sources to constitute consolidated net income.
b. Allocated proportionately to consolidated net income and the non-controlling interest.
c. Assigned as a component of the non-controlling interest.
d. Eliminated.

2. The Home Office ledger account in the accounting records of a branch is best described as
a. An asset account.
b. A deferred revenue account.
c. A revenue account.
d. An equity account.
3. Hedging an existing foreign exchange receivable arising from an exporting transaction is a
a. Net investment hedge
b. Cash flow hedge
c. Undesignated hedge
d. Fair value hedge

4. XYZ Agency, a trusted agency of the government, received the following allotment from the
Department of Budget and Management: Capital Outlay (CO), Maintenance and Other Operating
Expenses (MOOE), Personnel Services (PS); and Financial Expense (FE). The entry to record the receipt of
allotment from DBM would be:
a. Debit Cash-Modified Disbursement System; Credit Subsidy from National Government
b. Memorandum entry
c. No entry
d. Debit National Clearing Account; Credit Appropriations Allotted

6.

7. Which of the following would explain why the Investment in Branch account is less than the Home
Office Capital account?
a. A cash transfer to the branch is in transit.
b. An Inventory shipment to the branch (at cost) is in transit.
c. A home office has received and deposited a remittance from a branch customer but has not yet
notified the branch.
d. A cash transfer to the home office is in transit.
e. None of the above.

8. At the acquisition date, which of the following is not required to be recognized by the acquirer?
a. Goodwill separately from the identifiable assets acquired.
b. Retained Earnings of the acquiree.
c. Liabilities assumed.
d. Non-controlling interest in the acquiree.

9. A domestic company having importing and exporting transactions involving credit and requiring
settlement in foreign currency will hope that the direct exchange rate
a. Increases for both types of transactions.
b. Decreases for both types of transactions.
c. Increases for exporting transactions and decreases for importing transactions.
d. Decreases for exporting transactions and increases for importing transactions.
10.

11. The entry to record the receipt of the General Appropriations Act would be:
a. Posting/memo entry
b. Debit Cash-Modified Disbursement System; Credit Subsidy from National Government
c. Debit National Clearing Account; Credit Appropriations Allotted
d. No journal entry

12. The working paper elimination (in journal entry format) for a second year of intercompany sales
made at a markup over subsidiary cost by a partially owned subsidiary to the parent company includes:
a. A credit to Cost of Goods Sold-Subsidiary
b. A credit to Minority Interest in Net Assets of Subsidiary
c. A debit to Retained Earnings-Subsidiary
d. None of the foregoing

13. How is the effect of an exchange rate change for the current year reported under the temporal
method of translation?
a. As a direct charge or credit to stockholder’s equity.
b. Deferred in the asset or liability section of the balance sheet.
c. Currently in the income statement as an extraordinary item if material.
d. Currently in the income statement.

14. Which of the following funds of a nonprofit organization makes periodic payments of a fixed amount
at equal intervals?
a. Endowment Fund
b. Agency fund
c. Annuity fund
d. Restricted Fund

15. Contributions are reported in the statement of activities using all of the following categories except
a. Temporarily restricted
b. Board-restricted
c. Permanently restricted
d. Unrestricted

16. On October 1, 2020, Velec Co. contracted to purchase foreign goods requiring payment in local
currency units (LCU) one month after the receipt of the goods at Velec’s factory. Title to the goods
passed on December 15, 2020. The goods were still in transit on December 31, 2020. Exchange rates
were one peso to 22 LCUs, 20 LCUs, and 21 LCUs on October 1, December 15, and December 31, 2020,
respectively. Velec should account for the exchange rate fluctuations in 2020 as
a. An ordinary gain included in net income.
b. An ordinary loss included in net income.
c. An extraordinary gain.
d. An extraordinary loss.

17. Hedging a firm commitment is a

a. Cash flow hedge
b. Fair value hedge
c. Net investment hedge
d. Undesignated hedge

18. Hedging a firm commitment is a

a. Cash flow hedge
b. Fair value hedge
c. Net investment hedge
d. Undesignated hedge

19. A comprehensive authority issued to all national government agencies to incur obligations not
exceeding an authorized amount during a specified period for the purpose indicated therein and it
covers automatically appropriated expenditures common to most without need of special clearance or
approval from competent authority.
a. Notice of Cash Allocation (NCA)
b. Special Allotment Release Order (SARO)
c. Notice of Transfer Allocation (NTA)
d. General Allotment Release Order (GARO)

20. Which one of the following is not a characteristic associated with intercompany transactions?
a. Gains and losses must be eliminated in the consolidating process.
b. Intercompany transactions must be eliminated in the consolidating process.
c. Transactions that originate with a subsidiary must be eliminated in the consolidating process.
d. Transactions between two subsidiaries to be consolidated with the same parent do not need to be
eliminated.

21. IFRS/PFRS for SMEs, Section 30, Foreign Currency Translation, provides that a foreign currency
transaction shall be recorded on initial recognition in the
a. foreign currency
b. local currency
c. presentation currency
d. functional currency

22. Donated services are recognized as a contribution if:

a. All of the above are correct
b. The organization would otherwise purchase the service.
c. They require specialized skills and the individuals performing the donated service possess those skills.
d. They create or enhance nonfinancial assets

23.
24. Which one of the following is not a characteristic associated with intercompany transactions?
a. Intercompany transactions must be eliminated in the consolidating process.
b. Transactions that originate with a subsidiary must be eliminated in the consolidating process.
c. Gains and losses must be eliminated in the consolidating process.
d. Transactions between two subsidiaries to be consolidated with the same parent do not need to be
eliminated.

25. How is the effect of an exchange rate change reported when the current rate method of translation is
used?
a. Currently in earnings.
b. In the “owner changes in net assets” section of the statement of comprehensive income.
c. In other comprehensive income.
d. As a deferred gain or loss in the balance sheet.

26. How is the effect of an exchange rate change reported when the current rate method of translation is
used?
a. Currently in earnings.
b. In the “owner changes in net assets” section of the statement of comprehensive income.
c. In other comprehensive income.
d. As a deferred gain or loss in the balance sheet.

27. For unhedged importing and exporting transactions involving credit and requiring settlement in
foreign currency, which of the following dates would never be of concern or have accounting
significance?
a. The settlement date.
b. The transaction date.
c. The forward rate date.
d. The intervening financial reporting date(s).
e. None of the above.

28. IAS 21, The Effects of Changes in Foreign Exchange Rates, requires that the initial recognition of a
foreign currency transaction be
a. In the amount of the foreign currency
b. the spot rate at the date of the transaction
c. The closing rate at balance sheet date
d. the rate the currency is expected to be exchanged at
29. In a not-for-profit university, the government grants funds given directly to students are an example
of
a. A restricted contribution
b. Unrestricted revenue
c. An agency transaction
d. A bequest

30. The working paper elimination (in journal entry format) for a second year of intercompany sales
made at a markup over subsidiary cost by a partially owned subsidiary to the parent company includes:
a. A credit to Cost of Goods Sold-Subsidiary
b. A credit to Minority Interest in Net Assets of Subsidiary
c. A debit to Retained Earnings-Subsidiary
d. None of the foregoing

31.

32.

33. Income earned from temporary endowments that can be spent on only certain programs but that
has not yet been spent would be reported in the statement of activities in the
a. Temporarily restricted or unrestricted category
b. Temporarily restricted category
c. Unrestricted category
d. Permanently restricted category

34. At acquisition date of business combination, an SME shall

a. Recognize goodwill acquired in business combination as an asset and not amortized it.
b. Not recognize goodwill acquired in a business combination.
c. Recognize goodwill acquired in a business combination as an asset, amortize, and test it annually for
impairment.
d. Recognize goodwill acquired in business combination and not amortize it but test it annually for
impairment.

35.

36. Any intercompany gain or loss on a downstream sale of land should be recognized in consolidated
net income:
I. In the year of the downstream sale.
II. Over the period of time the subsidiary uses the land.
III. In the year the subsidiary sells the land to an unrelated party.
a. I
b. II
c. III
d. I or II
Identification

• Floating exchange rates are also referred to as –

• Gains from remeasuring a foreign subsidiary’s financial statements from the local currency,
which is not the functional currency, into the parent company’s currency should be recognized as
part of –
• The process of expressing amounts stated in one currency in terms of another currency by using
appropriate currency exchange rates is-
• Begins with the issuance of a budget call issued by the Department of Budget and Management -
• Assuming no significant inflation, gains resulting from the process of translating a foreign entity’s
financial statements from the functional currency to peso (presentation currency) should be
recognized as part of -
• A promise to give is a contribution if the promise is -
• The actual changing of one currency into another currency is -
• A commitment that encompasses possible future liabilities based on current contractual
agreement -
• The intercompany gain (or loss) is considered to be realized from the use of the property or
equipment and it is accomplished through -
• A specific foreign currency exposure being hedged is commonly called as
• An option to sell is referred to as -
 • Refers to the authorization made by a legislative body to allocate funds for purposes specified by
the legislative or similar authority -
• The financial instrument used to achieve the hedge is commonly called as
• The process of translating the accounts of a foreign entity into its functional currency when they
are stated in another currency is called -
• Classified as permanently restricted contributions –

Hoyle, a Philippine Corporation, owns 100% of Frosan, A French firm. Assume that the peso is the
functional currency, although the books are kept in euros. What currency exchange rate would be used
to remeasure Frosan's balance sheet into pesos? Choose from current rate, simple average, weighted
average, or historical.

• Bonds Payable – Current Rate

• Sales – Weighted Average
• Accounts Receivable - Current Rate
• Common Stock – Historical Cost
• Accumulated Depreciation – Historical Cost
 • Cash – Current Rate
• Inventory, carried at cost – Historical Cost
• Equipment – Historical Cost

PROBLEMS

1. On January 1, 2019, Pastor Company purchased a delivery truck with an expected useful life of
five years. On January 1, 2021, Pastor sold the truck to Gray Company and recorded the
following journal entry:
Dr. Cash 275,000
Accumulated Depreciation 99,000
Cr. Truck 291,500
Gain on Sale of Truck 82,500

Gray Company holds 60% of Pastor Company. Pastor reported net income of P302,500 in 2021
and Gray’s separate net income (excluding interest in Pastor) for 2021 was P539,000.

In the consolidation working papers, the Truck account was:

Total Gray Company’s realized net income from separate operations for 2021:
Total Pastor Company’s realized net income from separate operations for 2021:
Total consolidated net income for 2021:
Controlling interest in consolidated net income for 2021
Non-controlling interest in consolidated net income for 2021

2. LMN Corporation has a calendar year end. On January 1, 2018, the company borrowed
7,500,000 Foreign Currency Units (FCUs) from a foreign bank. The loan is to be repaid on
December 31, 2021 and requires interest at 6% to be paid every December 31. The loan and
applicable interest are both to be repaid in pesos. LMN Corporation does not hedge to minimize
its foreign exchange risk. The following exchange rates were in effect throughout the term of the
loan.

January 1, 2018 FCU 1=1.3030

December 31, 2018 FCU 1= 1.2950
 December 31, 2019 FCU 1=1.2870
December 31, 2020 FCU 1=1.2850
December 31, 2021 FCU 1=1.2890
The average rates in effect were as follows:
2018 1.2980
2019 1.2850

What amount would LMN Corporation record its initial loan liability on January 1, 2018?
What is the amount of interest paid during 2018?
What is the amount of the foreign exchange gain or loss on the principal recognized on the 2018 income
statement?
What is the amount of interest paid during 2019?

3.

Total revenues and gains excluding other support on December 31, Unrestricted:
Total revenues and gains excluding other support on December 31, Temporary:
Total revenues and gains excluding other support on December 31, Permanent:
Total revenues and gains and other support on December 31, Unrestricted:
Total revenues and gains and other support on December 31, Temporary:
Total revenues and gains and other support on December 31, Permanent:
Total expenses and losses on December 31, Unrestricted:
Total expenses and losses on December 31, Temporary:
Total expenses and losses on December 31, Permanent:
Net Assets on December 31, Unrestricted:
Net Assets on December 31, Temporary:
Net Assets on December 31, Permanent:

4. A hospital has the following account balances:

Revenue from newsstand P187,500
Amounts charged to patients 3,000,000
Interest Income 112,500
Salary Expense-Nurses 375,000
Contractual Adjustments 412,500
Undesignated Gifts 300,000
Bad Debts 300,000
What is the hospital’s net patient service revenue?

5. For the year ended June 30, 2021, ABC University assessed its students a total of P9,000,000 for
tuition and fees. Included in this amount was P675,000 of tuition remissions awarded to
graduate teaching assistants, and P337,500 of scholarships awarded to undergraduate students
for which no services are rendered. Tuition and fees totaling P7,987,500 were collected during
the year ended June 30, 2021.

What amount should be reported in the unrestricted fund as net revenue from tuition and fees
for the year ended June 30, 2021?
What amount should be reported in the unrestricted fund as net revenue from tuition and fees
for the year ended June 30, 2021?
How much should ABC University report for the year ended June 30, 2021 for net revenue from
tuition and fees assuming that scholarship and fellowship granted as a result of employment
type of work to graduate assistants?

6. Public College’s unrestricted current fund comprised the following:

Assets P5,000,000
Liabilities (including deferred revenues of P100,000) 3,000,000
What is the fund balance of Public College’s unrestricted current fund?

7. Mid-America Manufacturing contracts to purchase inventory from a foreign supplier for

2,500,000 foreign currency units (FCU) on February 23. The inventory will be delivered on May 1
with payment due on June 15. The spot and June 15 forward exchange rates on February 23 are
1 FCU = P1.126 and 1 FCU = P1.139, respectively. Mid-America prepares quarterly financial
statements with a December 31 year-end. The relevant exchange rates and forward contracts
fair values are as follows:
 Date Spot Rate June 15 Forward Rate Forward Contract Fair Value
May 31 P1.132 P1.142 P7,500
May 1 1.129 1.138 (P2,500)
June 15 1.135 1.135 (P10,000)

Value recognized in the financial accounting records on February 23 for the forward contract.
Value recognized in the financial accounting records on February 23 for the forward contract.
The gain (loss) on the forward contract at March 31?
Net gain (loss) on the income statement at March 31?
Value of the forward contract at May 1?
 The gain (loss) on the forward contract at May 1?
Net gain (loss) on the income statement at May 1?
The inventory recorded on the balance sheet at May 1?

8. The following account balances are available for Barbel, a foreign Philippine subsidiary for 2021:
Beginning inventory FC 150,000
Purchases 800,000
Ending Inventory 210,000
Relevant exchange rates are:
4 quarter average, 2020 P0.837 = 1 FC
December 31, 2020 P0.846 = 1 FC
Average, 2021 P0.864 = 1 FC
4 quarter average, 2021 P0.891 = 1 FC
December 31, 2021 P0.909 = 1 FC

Compute the cost of goods sold for 2021 in pesos using the temporal method.
Compute the ending inventory for 2021 in pesos using the current rate method.
Compute the ending inventory for 2021 in pesos using the temporal method.
 Compute the cost of goods sold for 2021 in pesos using the current rate method.

9. During the current year, a VHMO receives unrestricted pledges of P300,000. Of this amount,
P100,000 has been designated by donors for use next year to support operations. If 15% of the
unrestricted pledges are expected to be uncollectible, what amount of unrestricted support
should the organization recognize in its current year financial statements?

10. Under Cura Hospital’s established new structure, patient service revenues of P9,000,000 would
have earned for the year ended December 31, 2021. However, only P6,750,000 was collected
because of charity allowances of P1,500,000 and discounts of P750,000 to thirdparty payors.
For the year ended December 31, 2021, what amount should Cura Hospital record as patient
service revenues.