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04cee04

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Transaction and
Translation

Forel n Currenc
Fair value is the amount for which an asset could be exchanged, or a
The Effects of Changes in Foreign Exchange Rates

4. ability settled, between knowledgeable, willing parties in an arm's

length

PAS 21

transaction. -..11 currency is a currency other than the functional currency of

the

Scope
forels
dard shall be applied:
5.
for transactions and balances
in
entity.
This Staccounting
Functional currency is the currency of the primary economic environment

forshose derivative transactions and balances that are withinneies,

ex

6. an nt i dt y assets a n d

a)
9 Flnancial Instruments: Recognition and
MfberealsgriureemuITe the se° cellt ent;
A group is a parent and all its subsidiaries. Monetary items are units of
PA 3
liabilities to be received or paid in a fixed or

7.

icnWhichen cy thheel de

financial position of foreign operations th

(b) in translating the results and
8 determinable number of units of currency.

are included in the financial

statements of the entity by consolidat. a,t
investment in a foreign operation is the amount of the reporting
Net
proportionate consolidation or
the equity method; and
entity's_ interest in the net assets of that operation.

Presentation currency is the currency in which the financial statements

9.
in translating an entity's result and financial position into a
Presentation
(c)
are presented.

10. Spot exchange rate is the exchange rate for immediate delivery.
currency.

PAS 39 applies to many foreign currency derivatives and, accordingly,

m

these Functional
excluded from the scope of this Standard. However, those foreign
The primary primarily generates environment in
which an entity operates is normally the

curretnahrei

nerates and expends cash. An entity considers the

derivatives that are not within the scope of PAS 39 (e.g. some foreign currea'
one e niPcnriwrno haniaclh

following factors in determining its functional currency:

derivatives that are embedded in other contracts) are within the scope of

Standard. In addition, this Standard applies when an entity translates amounts

(a) the currency:

(i) that mainly influences sales prices for goods and services (this will
relating to derivatives from its functional currency to its presentation currency,

often be the currency in which sales prices for its goods and

services are denominated and settled); and

This Standard does not apply to hedge accounting for foreign currency items,

(ii) of the country whose competitive forces and regulations mainly

including the hedging of a net investment in a foreign operation. PAS 39 applies
determine the sales prices of its goods and services.
to hedge accounting.

(b) the currency that mainly influences labor, material and other costs of
This Standard applies to the presentation of an entity's financial statements in

providing goods or services (this will often be the currency in which

a foreign currency and sets out requirements for the resulting financial

such costs are denominated and settled).

statements to be described as complying with Philippine Financial Reporting

Standards (PFRSs). For translations of financial information into a foreign

The following factors may also provide evidence of an entity's functional

currency that do not meet these requirements, this Standard specifies

currency:

information to be disclosed.

(a) the currency in which funds from financing activities (i.e. issuing debt

and equity instruments) are generated.

PAS 21 does not apply to the presentation in a statement of cash

flows of the

(b) the currency in which receipts from operating activities are usually

cash flows arising from transactions in a foreign currency, or to the trans.,

retained.

of cash flows of a foreign operation (see PAS 7 Statement of Cash Flows)

The following additional factors are considered in determining the• functional

Definitions

currency of a foreign operation, and whether its functional currency is the same
The following term

e cif:: esntt that of the reporting

entity (the reporting entity, in this context, being the
1. Closin s are used in this Standard
with the meanings specified:
neriod.

y that has the foreign operation as its subsidiary, branch, associate or joint
2. Eytc_ aig rate is the spot exchange rate at the end of the reportl,"! VC
venture):

ge difference is the difference resulting from

translatingereot
numhber of units of one

at

exchange rates.
(a) whether the activities of the foreign operation are carried out as an

3. Exchange
ge rate is the ratio currency into another currency
extension of the reporting entity, rather than being carried out with a

io of exchange for two currencies.

e
tc) whether cash flows from the activities of the foreign ,,p .ratio
(b) whether transactions wi
remittance to it.
the cash flows of the reporting entity and an- r,fiebt., direeti3,6_
proportion of the fordo operation's activates.
income an air
areccumi' lates cash and other monetary items, incurs ,xpe the at/
foreign,s the proceeds to it. An examplele
t e latter is wherti, -E
sift de W.ee of
goods imported from e
nlud anges borrowings, all substantially in its rises'
operation only sells g
autonomy. An example of the n,

'th the reporting entity -

(lItter,"
of the orn the reamer

are., ePo
*h
a high cn.
ocal "I'Welt(acey
a1.2.4
(d) whether cash flows from the activities ofetdnedfcbrtrim::441,e4twailon are %wit
to service existing and normally expect
..111 wNL_
lees
being made available by the reporting entity.
o v
, management uses its judgement to del e
I Le
tion"":'::"
When the above indicators are mixed and the
that most faithfully represents the rconoilla
transactions, events and conditions.
• urakr., •
An entity's functional currency reflect s thr tunic
Change in Functional Currency
conditions that are relevant to
Accordingly, once determined, the
functional currency is not changed mntess
:n
underlying transactions, events and conditions
If the functional currency is the currency of a h'
: - •._
71a.ry
The Functional Currency is the Currency of ei Hype ri ri flat ionary Ecoaorly
entity's financial statements are restated in
PAS 29
Reporting in Hyperinflationary Economies.
Monetary items
The essential feature of a mone tan. Item is a ngtit 14.4
deliver( a fixed or determinable number of unit a u:
:•••■
Examples of monetary assets include.
(al Cash and cash equivalents
(b) Financial assets at amortized cost
icl Notes and accounts receivables and their it- •
Advances to employees
tel Prepaid interest
(0 Receivable or obligation under finance lease
tg Cash surrender value
(hi Pensions and other employee benefits to be
cAsh•
(i) Prwasions that are to be settled in cash: and
±°•ruff., earTratal 7-taa.24zikaa
SR9
cash dividends that are recognized as a liability.
.130Accon:ris tsand nocete.s. payable
pain‘s-atru..blements or a variable amount of assets in which the fair
i)e (or deliver) a variable number of the entity's own
I", A contract to re
value to be received (or delivered) equals a fixed or determinable
number fssuennitt:.dott.e- cauturrerenoc;:a non-monetary item is the absence of a
oil))
remooe
or an obligation to deliver) a fixed or determinable number of
Contve:c'Y'
unit, of CUrre [WY
°tat II iaPI r)A15 11:1 0 U1110010
fur egonlosd itin cainudd eservices (e.g. Prepaid rent, insurance,
(bt
If)
lel Proper..., ;..
rat, arici
Id) Itivelin.4.e:
1,7ctled by the deliver), of a non-monetary
AS
tio Advance
: :
al/ Financial a
.....
7 77a "II:1g
(1) Financial
through other comprehensive income
0) Ordinary
:. _r
ea.pital
(it) Share pre::...
Ill Non-cor.7:-
- 7.771.

Foreign Currency Transactions

A toreigi
. •

settlement in a :,,re
(a) Buys or
•
transactions arising when an entity:

s whose price is denominated in a foreign

7r...7:suction that is denominated or requires
.ar.er. the amounts payable or receivable are
....irrency, or
Id Otheralsr
-4' spo s es of assets, or Incurs or settles liabilities,
denorn:ha::::
forel--. c.--.•arrenc-y
Initial recognition
f°reign currer.cv tra.i.sa.1-e s'ra.. be recorded, on initial recognition in the

:112,Cchtaionge nal act t

of
a

ur
transaction
nf.c re Ign currency amount the spot
fie Oat` "r a

trarc
:717,1
Ca!e on which the transaction first qualifies for
PFRSs (date of sh:pments or date of invoice)
obbgettal'.-
CU/:e
lb) Borrows
.
denon-enat:-.1
7evteiept exone.yeet 7r.asd4ctioo & 7,:a!fdatiog 591

la rate that
approximates the actual rate t fl,

example, an average rate f04- 'e cI4

used, for
t or carrying amount, as appropriate, translated at the exchange
For practical reasons, ction is often used for all transactions in
each foreign curl: a weei_te of
(a) The COS -
the transa might be
if eschan.- ge rates fluctuat fluctuate 8 ign, D., Ceu,,
q 1.1Cy 0 Or ,
rate at the date when that amount was determined (i.e. the rate at the date
month d raffotewever,
•aean,,, 'ill),"1' the roaf the
transaction for an item measured in terms of historical cost); and
perio-.
period kinaporopriate.
uring that for a

use of the average

(b)The net realizable value or recoverable amount, as appropriate, translated

subsequent reporting periods

at the exchange rate at the date when that value was determined (e.g. the
Reporting at the ends of
it

rung period:
dosing rate at the end of the reporting period).
At the end of each repo monetary ems
shall be translated •
usin
(a) Foreign currency mon
g the closing

The effect of this comparison may be that an impairment loss is recognized in

rate;

the functional currency but would not be recognized in the foreign

• (b) Non-monetary items that are measured in terms of historical

currency, or vice versa.

a foreign currency shall be translated using the exchange '

coat i„

sc rate at th'e
 date of the transaction; and
Recognition of Exchange Difference

Exchange differences arising on thesettlement of monetary items or on

(c) Non-monetary items that are measured at fair value ina f0

translating monetary items at rates different from those at which they were

currency shall wastranslated using the exchange rates at

the date be
f e when translated on initial recognition
during the period or in previous financial

determined.
statements shall be recognized in profit or loss in the period in which they
e fr v
th ai alue When

arise, except when the exchange differences are required by the standards to

be recognized in Other Comprehensive Income (e.g. Exchange difference arising

Direct and Indirect Quotation

A. Direct Quotation - the exchange rate is stated as a number of local

on a monetary item that forms part of a reporting entity's net investment in

currency in exchange for one unit of foreign currency. Example ($1 =

P50)
foreign operations shall be recognized initially as a separate component of

equity (OCII and recognized in profit or loss on disposal of the net

B. Indirect Quotation - the exchange rate is stated as a number of foreign

investment.).

currency in exchange for one unit of local currency. Example (P1 =

$0.20)

a. When monetary items arise from a foreign currency transaction and there

is a change in the exchange rate between the transaction date and the date
Selling and Buying Spot Rates

of settlement, an exchange difference results. When the transaction is

A. Selling Spot Rate - it refers to the rate of the currency where the broker

settled within the same accounting period as that in which it occurred, all
(bank) is willing to sell the foreign currency.
the exchange difference is recognized in that period.

Example:
B. Buying Spot Rate - it refers to the rate of the currency where the broker

Transaction Date
(bank) is willing to buy the foreign currency.

Profit or loss

Settlement Date
1•

Non-Monetary Items that are measured other than historical cost e

b.
.(a) Property, plant and equipment may be measured in terms of fair value;
However, when the transaction is settled in a subsequent accounting

(b Inventories cost in accordance with PAS 16 Property, Plant and Equipment.

period, the exchange difference recognized in each period up to the date of

) nventories are measured at the lower of cost and net realizable v'" in
settlement is determined by the change in exchange rates during each

period.

(c) accordance with PAS 2 Inventories.

The carrying amount

indication °f

Example:

impairment is the lower of its carrying amount before consideringgpAs 36

Transaction Date

impairment losses and its recoverable amount in accordance vvi

Profit or loss
Impairment of Assets,

I.

Balance Sheet Date

When suchan asset is non-

care°
monetary
the carrying amount is determined bynd is
measured in a foreign yry

Settlement Date
Profit or loss

comparing:
7
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c, that mainly influences the sales prices of goods and services may lead
to a ehang
curren
ein an entity's functional currency.
The effect of a change in functional currency is accounted for prospectively. In
other
_ words, an entity translates all items into the new functional currency
using the exchange rate at the date of the change.
The resultin _translated amounts for non-monetary items are treated as their
treated as their
historical cost.
Translation of Foreign Operation
Exchange previouslyto differences arising from the translation of a foreign
operation
recognized in other comprehensive income are not reclassified from
equity phriesvicicoffse
profit or loss until the disposal of the operation.
t
Translation to the Presentation Currency
An entity may present its financial statements in any currency (or currencies).
If the presentation currency differs from the entity's functional currency, it
translates its results and financial position into the presentation currency. For
example, when a group contains individual entities with different functional
currencies, the results and financial position of each entity are expressed in a
common currency so that consolidated financial statements may be presented.
I. The results and financial position of an entity whose functional currency is
not the currency of a hyperinflationary economy shall be translated
into a different presentation currency using the following procedures:
(a) Assets and liabilities for each statement of financial position presented (i.e.
including comparatives) shall be translated at the closing rate at the date
of that statement of financial position;
(b) Income and expenses for each statement of comprehensive income or
separate income statement presented (i.e. including comparatives) shall be
translated at spot exchange rates at the dates of the transactions;
For practical reasons, an average rate for the period, is often used to
translate income and expense items. However, if exchange rates fluctuate
significantly, the use of the average rate for a period is inappropriate.
All resulting exchange differences shall be recognized in other
comprehensive income. The exchange differences referred (c) result from:
(i) Translating income and expenses at the exchange rates at the dates of
the transactions and assets and liabilities at the closing rate.
(ii) Tprreavinsoluastinclgotshinegopraetneing net assets at a closing rate that
differs from the
(c)
:end-ininonetary item is cognized• -41e (r1
Other Comprehensivinrs _
Exchange Difference Rencoagnrii
When a gain or loss o
any exchange component of that gain
la CI)
or loss oth
comprehensive income,
than be
4
recognized in other comprehensive income.
Conversely, when a gain or'losnispoonneannr uofnr-hninotn gain orloss i t e mshall
i s recognize
be re d ill
comprehensive income. For example, PAS 16 drequires some gains and loserother
Other PFRSs require
profit or loss,
in profit or loss.
any exchange co
some gains and losses to be recognized .
re coll3ii:siszeesci
arising on a revaluation of property, plant and equipment to be
other comprehensive income. When such an asset is measured in - -a f--ed in
currency, the standard requires the revalued amount to be translated uR;gn
rate at the date the value is determined, resulting in an exchange difference
the
Net investment in a foreign operation
An entity may have a monetary item that is receivable from or
that is also recognized in other comprehensive income.
payable to a
noctri'lfifke
occur in the foreseeable future is, in substance, a
may include long
net
likely toforeign operation. An item for which settlement is neither planned
,
part of the entity's
investment in that foreign operation, such monetary
term receivables or loans. They do not include trade
or trade-
payables.
Exchange differences arising on a monetary item that forms part of a reporting
entity's net investment in a foreign operation shall be recognized
a. In profit or loss in the separate financial statements of the reporting entity
or the individual financial statements of the foreign operation, as
appropriate.
b. In the financial statements that include the foreign operation and the
reporting entity (e.g., consolidated financial statements when the foreign
operation is a subsidiary), such exchange differences shall be recognized.
initially in other comprehensive income and reclassified from equity to
profit or loss on disposal of the net investment
Change in functional currency
When there is a change in an entity's functional currency, the entity shall apply
the translation procedures applicable to the new functional currencY
prospectively from the date of the change.
events,
The functional currency of an entity reflects the underlying transactions, netion9-
1
once the I ,0 those
and conditions that are relevant to the entity. Accordingly,
ucunrrdeernicy is deterined, it can be changed onl if there is a change change in
the
ying transactions, events and conditions. For example, a chari5
7044119# e`mesef 7Teuedeictici. & 7

or loss ,eca„
1-
differences are nuottureeocrognnoir in profit
i
i-,1444414*594
These exchange
changes in exchange rates have The cumulative amount
of mount of the each the
the pres:se the
future cash flows from operatic) •
until dr'cchatipci
to component 0 equity ii
differences is presented in a sepsis
t.
m
the foreign operation and any cumu a ivle a Tount of exchange diff slaosal te
talent. erence °I
II. The results and financial position of an entity whose functional
reclassified to profit and loss as rec assi 'cation adjus
shall be translated is
rren
is the currency of a hyperinflationary economy
a different presentation currency using the following procedures:slated ' e3'
into
(a) All amounts (i.e. assets, liabilities, equity items, income
including comparatives) shall be translated at the closin
expenses
the most recent statement of financial position, except cept that
grate at the date
non-hyperinflation
and
uste of
(b) When amounts are translated into the currency of a
economy, comparative amounts shall be those that

ci. statements
as

were re •
'
current year amounts in the relevant prior year financial 'al
or subsequent changes 13 sented
nts (ie not

adjusted for subsequent changes in the price level o

in exchange rates). _ anges
When the economy ceases to be hyperinflationary and the entity no longer
restates its financial statements in accordance with IAS 29, it shall use as the
historical costs for translation into the presentation currency the amounts
restated to the price level at the date the entity ceased restating its financial
statements. Translation of a foreign operation.
exchange differences recognized in other comprehensive income to the non-
ch
the ex . interests in that foreign operation.
olitilhger partial disposal of a foreign operation the entity shall reclassify to
oewnxch
Apinr:ntrtytoellwn
losses or because of an impairment recognized by the investor, does not
of the carrying amount of a foreign operation, either because of its
only the proportionate share of the cumulative amount of the
loss
differences recognized in other comprehensive income.
constitute a partial disposal. Accordingly, no part of the foreign exchange gain
or loss recognized in other comprehensive income is reclassified to profit or loss
at the time of a write-down.
704€194 eavore4 714,0aereog& 7tagdatedo 595
stirall :8aitri°fbui:eretihgen:roPpeorgrttitoinante share of the cumulative
o t of
Partial DflairtsPiai disposal of a subsidiary that includes a foreign operation,
the
entity
Disposal of Foreign Operation
On the disposal of a foreign operation, the cumulative amount of the exchange
differences relating to that foreign operation, recognized in other comprehenshe
income and accumulated in the separate component of equity, shall be
reclassified from equity to profit or loss (as a reclassification adjustment) when
the gain or loss on disposal is recognized
In addition to the disposal of an entity's entire interest in a foreign operation,
the following are accounted for as disposals even if the entity retains an interest
in the former subsidiary, associate or jointly controlled entity:
(a) The loss of control of a subsidiary that includes a foreign operation;
(b) The loss of signifi
operation; and cant influence over an associate that includes a for e, IP
(c) The loss of joint-control over a jointly controlled entity that
inclfuodreesigna •
foreign operation. On disposal of a subsidiary that includes a, elating to
operation, the cumulative
that
amount of the exchange differences 1
re:trolling
.
foreign operation that have been attributed to the non-e°— f or
interests shall be derecognized, but shall not be reclassified to Pr° it
loss.
ewritegev 71a4d4c4a. & 7
1,111111.1.—
'44,414..s96
EXERCISES
,due on
nd 1A,„ lvas
follows:
were as
a
January 30, 2023. The exchange rates for the British par 1414 r 14

Problem 1: Manila
-...ish „_ mg f_o
Pr:endor in London on Novem
Im
60-day rate
1.56
30-day rate
1.63
1.59
Spot rate
1.64 ,
£1.62 ' 2022
ort Transactions
,
1
i)
Company purchased merchandise for 300,000 pounds
November 30, 2022
December 31
ber 30, 2022. Pa
in Brit •
1
,
£1.65
un,-,
In its December 31, 2022 income statement,hat is the amount t
by Manila Company as foreign exchange differwence?
C. P3,367 gain
to
nn be repotted
-ned
P9,000 gain
d. P9,000 loss
b P3,367 loss
Answer B
Suggested Solution
Difference - loss
Nov. 30: Spot rate (P1 / $1.65)
Dec. 31: Spot rate (P1 / $1.62)
P0.01122
P0.60606
P0.61728
£300,000
x Foreign Currency
P(3,367)
Forex loss
The foreign exchange rate is quoted at indirect exchange rate. It should be
converted first to direct exchange rate before computing the foreign exchange
gain or loss,
Problem 2: On January 2, 2030, Pagani Inc. acquired building for $100,000
from a company based on Australia. The building estimated useful life is 10
years. Pagani Inc. uses the straight line method of depreciation and revaluation
model.
appraised value of $120,000. The relevant exchange rates are as follows:
On December 31, 2030, the building revaluation amount was determined at net
January 1, 2030
$1 = P30
December 31, 2030
$1 = P32
9aizeigg exerneou, ?taw:at-atm & 7uutal4.tio4 597
'--Hr(t? IPP 221" 0° 'I. 0° 4 , 00° 0°00°0F:RFrneRervxeealuation surplus - OCI
ag.owcepin4ror0031, 2030?
be' is the gain or loss to be presented in
xvgalaigauniantion surplus — OCI
the financial statement on
Answer C
els2 t0:d0a0Sm0voaol lxuuutpeino3tno2of) of equipment o n Dec. c_.731,3.2031(0,
(11
Suggested

equipment on Dec. 31, 2030

P3,840,000
P2,700,000
0 00 x 9 yrs. /10 yrs. x P30)
P1,140,000
ized the date the value is determined, resulting in an exchange difference
that is also recognized in other comprehensive income.
Problem 3: On December 1, 2030, Asahi Inc., a Philippine company,
purchased inventory worth $100,000 from a-U.S supplier, payable within 30
days. Asahi Inc., issued a 30-day notes payable in U.S dollars. On December
31, 2030, it paid the note. The following are the relevant exchange rates:
Date
Buying Selling
December 1, 2030
$0.04161 $0.04141
December 31, 2031
$0.04149 $0.04129
The foreign exchange gain or loss on
a. ,P7,000 loss
b. P12 gain
the transaction is:
c. P10 gain
d. P5,000 loss
Answer A
Suggested Solution
Difference cteo _diiroescst quote - Dec. 1 (1/.04141)
xrIno:roerxreeiciogntstsocn.diureecntcqyuote - Dec. 31 (1/.04129)
1,di
P24.15'
Pill ( )itt
P24.22
(0.07)
100,000
P(7,000)
 .1111111•1"—__

9:woo gam:oaf
7,:affsactioie & 7,„1„

7yzel9a eavtoseey 7utodactio# & 77curetatiaa 599

(.1

Problem 4: An entity 'purchases plant freormatae fworaesi7 ysupplier for 3

rot

3: The exchange rate on settlemendtc..d $ ap1t1e:

P20.15

gunt has not

'beeenni: '14:1,1,. The thel;i" Yell

h
gelq.p1 = $0.10
$10
on Jan any 2, 2030, whenotohetexecainn
°sine, ' a
year encirDecember 31, 2 ' functional currency is the al .
"le el 41titv. peso. .. rate (a'$20.05

b. P

was Yen 1.50 Pl.

is the cost of computer on December 31, 2031 statement of

correct?
4: :-low much
g
e loss PO
5 . 0 million, trade „

exchange
payable financial position?

c. P5,000
 r a. Cost of the plant is P2 million,

id: P2,000,000
i Which of the following statement is The entity's

—1).'1Cost of the plant P1.5 million, exchan ge loss P0.50 million, trade ,,
P2 million
b. P20,000

accounts payable on December 31, 2030:

How much is the total

C. Cost of the plant is P2 million, exchange loss P0.50 million, trade

payable

statement of financial position?

c. P2,000,000

Req 5: 00:

d. Cost of the plant PI.5 million, exchange loss P0.60 million, trade payable
d. P5,000

P2 million

wppe22:6011)57020)0C 3) D 4) C 5) A

Answer B
R Solution
Suggested el

Suggested Solution
Indirect quotation to direct quote Sept. 1: 1/ 20
P0.05

P1,500,000
Cost of the plant (3 million yen x 1 / 2)
Multiply: Foreign Currency
100,000

Change first the exchange rate to direct quotation

Total Inventory on September .1
5,000

Add: Foreign exchange loss

15,000

P0.50 Total December 31

Indirect to direct quotation: Jan. 1, 2030 (1/2)
20,000

P0.66 Divide by Foreign Currency

Indirect to direct quotation: December 31, 2030 (1/1.50)
100,000

Exchange rate December 31; Direct quote

Difference - loss
(0.166)
P0.20
 x Foreign Currency.
3,000,000

Req. 2

Forex loss
P(500,000)

Indirect quotation to direct quote Sept. 1: 1/ 20

P0.05

Multiply: Foreign Currency

100, 000
Trade payable ( 3 million yen x P0.66)
Total Inventory on December 31, 2030

P2,000,000
P5,000

Req. 3

Exchange rate December 31; Direct quote

Problem 5: On September 1,-2030, Baby Co. acquired a computer for $100,00:

TotMultiply: Foreign Currency

P0.20

w en4he exchange rate is P1 = $20.‘, Baby reported foreign exchange loss

f

al
100,000

(15,000 in its 2030 financial statement and P10,000 foreign exchange gain Iii
 its-2031 financrafifatements.
20,000

Less: Foreign exchange gain

\
Total

10,000
Req. 1: What is the exchange rate on December 31, 2030?

Divide by Foreign Currency

10,000

a. P1=19.85
100,000

Exchange rate on Settlement date - direct quote

b. $1 = P20.15 c. $1 = P0.20

P0.10

d. None of the choices

Direct to Indirect quote = 1 / 0.10 = 10 or P1 = $10

nt of
financial
Req. 4.

aterne
position? Req. 2: What is the amount of computer on December 31, 20
30 st

a. P2,000,000

b. P2,015,000

It mil do not change because it will be carried at exchange

(c. P5,000
n si
rate on the date of
transacnce it is a non-monetary item.

d. P20,000
 70,49„ eavtocef
7zolga4ceed4 & 7

11P'

'42'624142.,,600

% eerneway 7rximeaction & 714aolatisa 601

P0.20

entity's functional currency is the Php (Peso)

Req. 5
100,000

P20,000
Multiply: Foreign CurrencY
Exchange rate Decernber31; Direct quote

Total accounts payable

ger: exh:hnagnegerarteats:ein 20X0: 1 Baht = P2.04

had the

following for
Problem 6: Nagai Inc., a Philippine company, h

DWieec:jughtin7c:bee":":Lafaile What 'rari2s00:t1h10e:BahloarryiBaht =tnP=g2P2.1

amount of the investment property at December
during 2030:
g eig4

currency transactions ti
- Inventory was purchased from a foreign supplier lier on Jan_
rc12010 and what amount/s would be presented in profit or loss for the year
20, 20243

2010?
for the Philippine peso equivalent of P90,000. The invoice

, was

Paid 0:1'
March 20, 2030, at the Peso equivalent of P96,000.

deccla rrDecember

, ey 'Carrying amount t of investment property = P210,000. Profit for the year

a
On July_1,. 2030, Nagai borrowed the peso
equivalent of P500,000 Includes P30,000 increase in
the fair value of investment property.

evidenced by a note that was payable in the le

n(ler's local currency on

ippine Peso equivale Carrying amount of investment

property = P210,000. Profit for the year
July 1, 2032, On December 31, 2030, The Phil
b.

of the principal amount and accrued inter(

•st were P520 nts.000 and includes P20,400 increase in
the fair value of investment property and

10",. per annum.

P26,000, respectively . Interest on the note is
P9,600 foreign exchange gain.

r
c. Carrying amount of investment property = P180,000. Profit for the year
In Nagars,2030income statement, what amount should be included a. f
atreign

includes no amount in respect of the investment property.

exchange transaction loss as part of net income?

c. P21,000
a. PO

d. Carrying amount of investment property = P189,000. Profit for the year

d. P27,000
b. P6,000

includes P9,000 foreign exchange gain.

Req. 2: Assuming the entity cannot, without undue cost or effort,' determine the

Answer D

fair value of its investment property reliably on an ongoing basis. What is the

carrying amount of the investment property at December 31, 2010 and what

Suggested Solution

amount/s would be presented in profit or loss for the year ended December 31,

2010?
Transaction 1

Jan. 20 - Transaction date

90,000 a. Carrying amount of investment property
= P210,000. Profit for the year

Mar. 20 - Settlement date

96,000 includes P30,003 increase in the
fair value of investment property.
 Forex loss
(6,000)

b.

Carrying amount of investment property = P210,000. Profit for the year

pin9c,16u0doesforPe2igOn,4e0x0chinacnrgeeasgaeinin. the fair value of investment

property and

Transaction 2

July 1 - principal

500,000 c.

Accrued Interest (500,000 x 10% x 6/12)

25,000 Carrying amount of investment

property = P180,000. Profit for the year

includes no amount in respect of the investment property.

515,000

December 31 Peso equivalent (520,000 + 26,000)

546,000 d.

Forex loss

Carrying amount of investment property = P189,000

(11,000
Profit for the year

includes P9,000 foreign exchange gain.

Total Fore,' loss (6,000 + 21,000)

Answer 1) A 2) C
P27,000

Suggested Solution
Problem 7: On January 1, 2010 an entity purchased a tract
of vacant landsthanal Req, 1

d 3 •
is situated overseas for 90,000 Baht. The emit classified the lan 2010 is

,,-investment property. The fair v

_Fair value. Baht 100,000 x P2.1 = 210,000
value of the land at Decen
100,000 Baht. Y

lber 31'

Profit (Bala 100,000 x P2.1) - (Baht 90,000 x P2) = P30,000

?maga eavteacet 7144014CtiMe & 7fauuttateut 603

Req. 2 Investment property at Cost = Baht 90,000 x P2 =

P180,000
correct journal entries on 31 December 20X1 for the tr transaction.

Whastfae the correct

rofit or loss
on 31 December 20X1 so both the trade payable and the

Profit or loss No p

a.terials continue to be recorded at CU20,000

raw ma

Problem 8: On November 19, 202, Risk Company, a Philip 113 in

CU3,000

ordered merchandise -froin—Wales -Company for

e C

lands 0'4411the b.
rYfit or loss (exchange difference)
CU3,000

merchandise was delivered on December _18, 2022. The _.

December 2, 2022, the shipping date (FOB shipping point) ninvnice

• ixisk c 'vas Comps .4teti
i:eebbictitPrierndiovfteitnPot:roloss (exchange difference)
CU3,000

the invoice on January 28, 2023.

-43F paid Credit Trade payable
CU3,000

-
The spot rates for a pound on the respective dates were:

On 31 December, both the trade payable and the raw materials are
P76.90
November 19, 2022
measured at CU23,000. There is no effect on profit or loss as the two

076.15

December 2, 2022
exchange differences offset each other.

075.75

December 18, 2022

P72.35

December 31, 2022

on 31 December 20X1:

P73.15

January 28, 2023

No adjustment for inventory

irY2022?
at amount will affect profit or loss

.___If'25,440 loss
CU3,000

Debit Profit or loss (exchange difference)

a.; P120,840 gain

CU3,000

d. P144,690 gain
Credit Trade payable
b. P108,120 gain

On 31 December, the trade payable is measured at CU23,000 • and the

Ans wer A

inventory is measured at CU20,000. There is an exchange loss of CU3,000

on the trade payable.

Suggested Solution
 Transaction date: Dec. 2
P76.15

d. Debit Inventory
FCU3,000
Balance sheet date: Dec. 31
P72.35

Credit Profit or loss (exchange difference)

FCU3,000

Difference - gain
3.80

x Foreign Currency
31,800

No adjustment for trade payable

Pores gain
P120,840

On 31 December, the trade payable is measured at FCU20,000 and the

inventory is measured at FCU23,000. There is an exchange gain of

CU3,000 on the inventory.

Problem.-91 December 20X1 an SME entity purchases raw materials

costing 'FCU10,0# on credit._At the entity's year-end, 31 December 20X1, the

raw materials-have not--1-e-t-been- used and are not impaired. The SME entity
Answer C

pays the supplier on PS January 20X2:

SME entity has a functional

currency of CU.
Suggested Solution
 -- -----

Exchange rates are as follows:

Inventory will not be adjusted since it is a non-monetary item and it will be

•
carried at historical cost.
1 December 20X1: FCU1 = CU2

•
31 December 20X1: FCU1 = CU2.3

•
The trade payable will be adjusted on December 31, since it is a-,-rrionetary
iterT1,)
15 January 20X2 FCU1 = CU1.8

and Forex loss will be recognize for the increase in foreign eX-Clfarige- rate

amounting to 3,000 = CU 2 - CU 2.3 = CU 0.30 x 10,000.

On 1 December 20X1 the entity recognizes the following journal entry

Debit: Inventory CU20,000

Credit: Trade Payables CU20,000

6709, eartc•rey 7ratmaceckIN 8, 714

tideire44,604

7evteiepc euTteges, 774o4esetioo & 714,0tatioa 605

problem 11,1:_Emeerador5r(i)c6,, :npAaurentstcrip2a070 of a

grout.,

when the; of earn

c. P5,734,000
Acquire_d quipme.nt. for 00 be 0

paid six months after. BY the end tellananiltillie,

liainbcreilityasisedt to
•
p5,640,000
d. P5,922,000

is considered a °f th Nt

P3\ and this•' an

de e Year

financial position s
' ba; P5,875,000
rate
ear-end
, the cortivaluati the
(-$1 P26)
et
exchange

Pany shOWd

Answer 1) 13 2) A 3) D 4) A
report the equipment at:

a. P1,600,000
suggeisted Solution
P1,280,000

c.c.P1,300,000

Req'
P1.26

1:" P1,040,000
4,700,000

MNucliltianplyg:eFroarteeign Currency

P5,922,000

Accounts Payable

Answer C
P1,300,000

Equipment ($50,000 x P26)

Req. 2

P1.25

Exchange rate
A-should be recorded at spot rate on the date of transaction since it is
4,700,000

Multiply: Foreign Currency

non

(monetarY item carried at historical cost.

(5,875,000)

Accounts Payable
 ProblesnalLPaul purchases raw material from its foreign supplier, titxiin
on
Req. 3

P 1.25

February 1.,2030. Payment of 4,700,000 foreign currency units (FC) is due

in

e
P1.26

Jun
30, 2030 fiscal year-end. The
pertinent exchange rates were as

370 loss
(0.01)

follows:

bnrue 3ar 1
4,700,000

Multiply: Foreign Currency

Date
Spot Rate

Total Forex loss

P(47,000)

February 1
P1 .25

June 30
P1.26'

Req.

July 31
P1.20

July 31
P1.20

Multiply: Foreign Currency

4,700,000
(Req.-?:`For what amount should Paul's accounts payable be reported atJt__!_ile

Total Forex loss

30, 2030?
P5,640,000

c. 3,730,159

b)5,922,000

(It:75;875,000
d. 3,760,000

Problem12: Ivonne Inc., a Philippine Corporation, purchased an inventory

items from a supplier in Japan on November 5, 2030, for 100,000 yen, when
Req. 2: For what amount should Paul's accounts payable be reported at

(February 1, 2030?
the spot rate was P0.4295. At Ivonne's December 31, 2030, the spot rate was

a.,IP5,875,000
P0.4245. On January 15, 2031, Ivonne bought 100,000 yen at the spot rate of •

c. P3,730,159
E. P5,922,000
P0.4345 and paid the invoice. How much should Ivonrie report as part of net

d. P3,760,000
income for 2030 and 2031 as foreign exchange transaction gain or loss?
Year 2030

a.
Year 2031

Req. 3: How much .foreign exchange gain or loss should Paul record on June30'
2030?
500

b.
(1,000)

a. P470 loss
(500)

c.

b. P470 gain
(500)

(c. )?47,000 gain,

-

d.

(1,000)

d: P47,000 loss
500

Req. 4: How much

payable July 31, 2030? Philippine peso will it cost Paul to finally pay the
accounts

Answer A
Answer C
Suggested Solution
Transaction Date
June 30, 2030
Difference
X foreign currency
Forex loss
cviezere &Roof 714404e,thut & 7uuthiaoa 607
P1.00
P1.02564
(0.02564)
250,000
P(6,410)
Problem 15: Mandaluyong Company buys goods from Tokyo Company of
Japan, worth 000,000 yen;. The prevailing exchange rate is P0.1302136/Yen.
Mandaluyong Company-stifles the account 60 days later when the exchange
rate is going at P0.118376/Yen.
---
'12ei. 1: What is the forex gain or loss of Mandaluyong?
c. P1,920,000 loss
a. )P29,594 gain
d. P1,920,000 gain
bre 22:9W59h4atloisssthe forex gain or loss of Tokyo?
-dc.. pYen02,500,000
a. P29,594 gain
b. P29,594 loss
Answer 1) A 2) C
Suggested Solution
Req. 1
Settlement Date
Transaction Date
Difference - gain
x Foreign Currency
Forex Gain
P0.118376
P0.130214
0.011838
2,500,000
P29,594
Req. 2
Zero, no forex gain or loss since there is no foreign currency transaction.
BorrOwin Transaction
Problem 16: Vector Corporation issued a promissory note denominated in
foreign currency for the purchase made from a supplier in England on
December-1, for a 60-day, 18% promissory note for 108,000 pounds, at a
yelling rate of 1FC to P74.20. On December 31, the selling spot rate is 1FC to
P74S5; On January 30, the selling spot rate is 1FC to P75.75.
Suggested Solution
Transaction date - Nov. 5
December 31, 2030 Balance sheet rate
Difference - gain
x Foreign Currency
Forex gain - December 31, 2030
December 31, 2030 Balance sheet rate
January 15, 2031 - Settlement date
Difference - loss
x Foreign Currency
Forex loss -January 15, 2031
P0.4295
P0.4245
0.0050
100,000
P500
P0.4245
P0.4345
0.0100
100,000
P 1,000
Ortigas Holdings, Inc. is the parent com.pany, of a grou
—Bert_aisos its own trading. It bought its fixed asset-for iAr,-1,1
....„
,
-2030 when the exchange rate was P44-.00 to $im '79
030,-,Th-e suppliercof-the-fixedasset has not be eii:pai-d-arld th
_i_...--
a at time was P46.00 = $1200. The company has not takei
exchange contract for-this- payment to hedge against-adverse"
movements.
On the:!tatement of financial position of Ortigas Holdings Inc., what will be the
iar- en value for Accounts payable to the creditor?

,584,000
c. P1,854,000

1,656,000
d. P1,566,000
Answer B
Suggested Solution
$36,000 x P46 closing spot rate = P1,656,000
Problem 14: Alabang Trading buys goods from Kowloon Inc. of Hong long
payable in Hong Kong dollars at a credit term of 60 days. On June 30, 203o j,
the Statement of Financial Position of Alabang Trading reflects a pay171g
Kowloon Inc. representing.,purchase of goods worth HK$250,000 when 0
Kong dollars was going at HK$1/Phpl.
/
What will be Alabang Trading's foreign exchange gain or loss on June 30, 2030,
if the prevailing exchange rate is HK$ 0.975/PhP1?
a. P6,250 loss
b. P6,250 gain

c.,P6'410 loss
d. P6,410 gain
Problem 13:
conTiera •
on yember_l
December ,
exchange-rate—rth-
out a forward
exchang—e
 evteig‘c exeptegc9 7;:v 7

701eiept ewritzgef lutometiemcg 71cuutlatzug 609

On the settlement date, how much is thceflpbgr:

427 exchange ge gar/10" ? 64

a. P172,422 gain /M. P98,658 loss

P1.8182
b. P100,116 loss
Req. 2

December 3 1, 2030 P1.7241

December 1, 2030

0.0941

Answer D
Difference:.Gain 32,500

Multiply: Foreign Currency

P3,058.25

Suggested Solution
Total Forex gain
108,000

Notes Payable

Interest Payable - December 31:

P 1.6666

Req.tl3
(108,000 x 18% x 30/360) 1,620
ary 30, 2031

P1.8182

109620
jDanecember 31, 2030
Total Payables
(0.1516)

-Difference: loss
 x (Dec. 31: P74.85 - Jan. 30: P75.75) Increase 0.9
32,500

Multiply: Foreign Currency

98,658
P(4,927)
Forex loss

Total Forex loss

Ex ort transactions
_hi4ppine corporation, sold inventory
Problem 17: Mike Co.,
Problem 18: Makati Trading sells goods to MBK-Go_ of Bangkok, forFiOCK,.000
°11,1--
4cernb>i
2030 with payment o .32,5_00 British pounds to be received in sixty
Bait: The exchange rate at this time is P0.9875/ baht. MBK Co. pays 31 days

ment exchange rates-were as follows: aYs.

The later when the prevailing exchange rate is P1:-Baht 1.

Date Spot rate

-

December 1, 2030 P 1.7241

By reason of exchange fluctuation, how much is the foreign exchange gain or loss

December 31, 2030 P1.8182

if the agreed currency is Thcaland Baht?

c. P12,658 loss
P 1.6666
a. P12,500 loss
January 30, 2031

d. P12,658 gain

b. )P12,500 gain

credited on December 1?
Req. 1: For what amount shoul

c. P59,091.50
a. P18,850
Answer B

rd: 1)56,033.25
b. P17,875

Suggested Solution

Req. 2: What amount of foreign exchange gain or loss should be recorded on

Balance Sheet Date P1.00

December 31?
Transaction Date P0.9875

Difference - gain
a. P975 loss c. P3,058.25 gain
P0.0125

x Foreign Currency
b. P975 gain d/P3,058. 25 los s
1,000,000

Forex Gain

P12,500

Req. 3: What amount of foreign exchange gain or loss should be recorded on

January 30?

Problem 19: On September 1, 2030, Tristan Inc., a Philippine Corporation sold

a. P1,625 loss c. P4,927 gain

inventory to a foreign entity for $2,500. Terms of the sale require payment in
b. P1,625 gain d. 134,927 loss

U.S ciollars on February 1, 2031. On September 1, 2030, the spot exchange rate

(was F0 per dollar. At December 31, 2030, Tristan's year-end, the spot rate was
P4b, but the rate increase to P52 by February 1, 2031, when payment was
Answer 1) D 2) C 3) D

received. How much should Tristan report as foreign exchange transaction gain

or loss as part of 2031 income?

Suggested Solution
a. P5,000 loss

c. )P7,500 gain

b. P5,000 gain
December 1, 2030: Exchange rate
P1.7241
d. P7,500 loss

Multiply: Foreign Currency

32,500

Total Sales
P56,033.25
7oleifo &Moog 71:4•144Creac& 71cualatiow 611

Answer C

Suggested Solution
P52
oltriatisi3hritpisohurcid°Ina PoannYOrt Ml,a2y0130. The exchange rate was P1 =
£0.65 on May21

February 1, 2031 Settlement date rate

P49
problem 22: Greyhoundz Co.,
a2P0h3TpGpirneeyhcoourpondzratrixe,x1ddpianymvenentotryoionae0)

December 31, 2030 Balance sheet rate

.arid 0.70 on Oct 1.

Difference - gain
$2,500
ROBWhat amount of foreign exchange gain or loss should be recognized?

x Foreign Currency
P7,500

Pores gain
a. nd ,to the nearest peso)
c. P13,125 •ain

(Rw P5 250 000 loss

% d. P28,846 loss
----'
7..---
Problem 20: Irvin Corp seld,handicrafts goods to a US firm f
or $i ,-, , , b. P13,125 loss

rate follows: v,u00 ,

Req. 2: What amount should be recorded as sale of inventory in the income
information on
in
2029. Pertinent

Selling ent of
Greyhoundz in 2030?
c. P170,625

B4u5 3r. i8n0 g

statem
Sept.4 Receipt of order
47.00 46.00
a. P262,500
rd. P403,846
Oct.15 Date of shipment
48.00 b. P183,750

47.20
Balance Sheet date
48.50
Dec.31
46.00
Answer 1) D 2) D
Date of Settlement
47.00
Jan.6, 2030

Suggested Solution
Ca..)Th sale would appropriately recorded at:

c. P4,580,000
Sale Transaction - Receivable
P4,700,000
d. P4,800,000
October 1: 1/0.70
P 1. 428571
. P4,600,000
P 1.538462

May 1: 1/0.65

(0.109890)

Differthice: loss

262,500

Multiply: Foreign Currency

Answer A
P(28,846)

Foreign Exchange loss

Suggested Solution

Req. 2
P47 date of shipment x $100,000 = P4,700,000
May 1: 1/0.65
P1.538462

Multiply: Foreign Currency

262,500
Total Sales
P403,846

Problem 21: On September 1, 2030, Bruce Corp. received an order for

equipment from a foreign customer for 3(0,000 Yen when the peso equivalent

was p9 0o. Bruce--T11.-ipp5d the.equipment'on OCtober 15, 2030, and pilledthe

customer for 300,Q00 yen when the Philippine peso equivalent was P1000•

Problem 23: On October 5, 2022, Density Company sold goods on account to

Bruce received the custorneS remittance in full on November 19030, and

Britain Corporation for 50,320 pounds. The date of invoice is October 29, 2022
sold the 300,090en for Pi05,000. In its income statement for-the
year ended and payment is due on January 30, 2023.

December 31, 2030, Brice should report as part of net income a foreqp

exchange transaction gain of:

Exchange rates were as follows:

a. PO

c. 05,000
BID rate
b. P4,000
Oct. 05, 2022
OFFER rate

d. P9,000
Oct. 29, 2022
P67.50 P69.20

Answer C
Dec 31, 2022
P68.70 P66.80

Jan. 30, 2023

064.10 P63.40
Suggested Solution
_.. P62.40

P65.50

DReeqce,
Transaction date Oct. 15
Settlement date Nov. 16
100,000
December much is the total sales to be presented in the income
statement on

Forez gain
105,000

5,000
-70-leiga &opiate* 7ccu4atreo.,

ewptegegy 7,uusdactiat & 77etediatioo 613

c. P3,456,984

d. P3,190,288

4
32,000
a.

82,1
p3,4p3,396,6004.

Req. 1 eivable

c. P231,472 los
Notes Rec
320

Interest Receivable - December 31:

d. P105,672 gains
32,320

a. P171,088 loss
(32,000 x 12% x 30/360)

Req. 2: What amount will affect profit or loss in 2023?

1.10

b. P85,544 loss

Total Receivable 5 - Jan. 30: P33.75) Decrease

P 35,552

x (Dec. 31: P34.8

Answer 1) C 2) B

FOreli loss

Suggested Solution

Req. 2 P34.85 Dec. 31 spot rate = 1,115,200

P68.70 x 50,320 = 3,456,984• Use the spot rate on
the date of transaetio4

Req. 1
32,000 x

wich is the Shipping date. However if shipping date is

not given use the invoi

date.

Bid rate

Req. 2
P62.40

1:1:in,=75: On DeCember 31, 2032 a foreign subsidiary in Hongkong

Settlement date -Jan. 30, 2023

P64.10

Transaction date - Dec. 31, 2022

submitted the following balance sheet stated in foreign currency:

(1.70)

Foreign exchange loss

50,320
$500,000

Total assets
x Foreign Currency
P(85,544)
100,000

Total Liabilities

Forex loss
250,000

Common stock

150,000

Retained Earnings

The exchange rate are:

Lending Transaction
Current rate
P 3.40
 Problem 24: A Corporation received a promissory note denominated in foreign
Historical rate
3.10

currency from the sales made to a Singaporean customer. The followingwere

Weighted average
3.00

the related transactions: (in Singapore Dollars). On December 1, A Corporation

Assuming the functional currency of the subsidiary is the not the currency of

sold merchandise to a Singaporean customer for 60-day, 12% promissorynote

the hyperinflationary economy was used and the retained earnings of the

for $32,000, at a buying rate of $1 to P34.20. On December 31, the buying spot

subsidiary on December 31, 2032 translated to Peso is P 460,000. What

rate is $1 to P34.85. On January 30, the buying spot rate is $1 to P33.75.

amount of Cumulative translation adjustment is to be reported in the
consolidated balance sheet on December 31, 2032?

a. P25,000

Req. 1: On the settlement date, how much is the forex gain or loss?
c. P50,000

b. P10,000

a. P35,552 gain
c. P35,904 gain
d. P125,000

b. . P35,904 loss
d. P35,552 loss

Answer: D

Req. 2: How much is the total notes receivable to be recorded in the Dec. 31,

financial position?
Suggested Solution
Total Assets
a. P1,126,352

c. P1,094,400
500,000

Less:
b. P1,115,200
3.40

d. P918.22
1,700,000

Total Liabilities

Common Stock 100,000

3.40

250,000
340,000

Answer 1) D 2) B
Retained earnings
3.10

150,000
775,000
Total Cumulative Translation Adjustments
460.000

Suggested Solution

125,000
 i0
714NJOICe•

tart 7t4443

711e/4 ewneway 7reuarictioa & 71aNatatcipc 615

Problem 26: Emperador, Ltd. is a British subsidies ofra Philippine ctele".`

614
Emperador's functional currency is the pound ing.
The followin exchange rate for 2031 is 1FC=
P1.20 and the closing rate for the year 2031 is

rates were in effect during 2030:

iFc.p1.25.

of these transactions on the cumulative translation

January. 1
625

Determine the effect

June 30
k.610

adjustments for 2031: c. P24,000 loss

December. 31
P1 k•620

d. P4,000 loss
Weighted average rate for the year
PI g.630 a. P5,000 gain

b. P24,000 gain

Emperador reported sales of £2,625,000 during 2030.

would have been included for this

subsidi.,, Answer B
Req. 1: What amount (rounded)

calculating consolidated sales?

."Y Suggested Solution
400,000
 c. P4,233,871
a. P1,653,750

Acquisition Cost 300,000

d. P1,627,500
b. P4,166,667
Les: FMV of net assets

100,000

Goodwill 20,000

Req. 2: On December 31, Emperador had accounts

receivable of £490,000. Less: Impairment
80,000

What amount (rounded) would have been included

for this subsidiary in Goodwill - Dec. -2031
1.25

calculating consolidated accounts receivable?

Closing rate

100,000
a. P303,800 c. P784,000
Total Goodwill at closing rate

In Peso

b. P306,250 cL P790,323

100,000

Goodwill date of acquisition FC 100,000 x Pl.

24,000

Less: Impairment loss (FC20,000 x P1.20 average rate)

76,000
Answer 1) B 2) D
Goodwill per book

100,000

Less: Goodwill in at closing rate

Suggested Solution
Translation gain
24,000

Req. 1

Average rate P 1 /
P0.63 Problem 2$: TRANS Corp. owns a
subsidiary in Singapore whose statement of

Multiply: Foreign Currency

2,625,000 financial position in

Singapore Dollars for the last two years follows:

Total Sales

P4,166,667

December 31, 2022 December 31, 2023

Req. 2
Assets

Average rate
Cash and Cash equivalents S$ 450,000 S$
375,000
P 1 /
P0.62 Receivables
Multiply: Foreign Currency
490,000 Inventory
1,837,500 2,212,500

Total Sales
2,400,000 2,550,000

P790,323 Property and Equipment, net

3,825,000 3,450,000

Total Assets

S$ 8,512,500 S$ 8,587,500

Liabilities and Equity

Problem 27: Irish Corp, a Philippine Corp, acquired all the share capital of
Accounts Payable

Irvin Corp. a foreign company, for FC 400,000 (P400,000). Irvin's functional

Long-term S$ 825,000
S$ 1,125,000

debt
currency is the FC. At the date of acquisition, December 31, 2030, the foreign
4,837,500 4,275,000

Common

stock
subsidiary had net assets of FC 300,000 which was fairly valued.
Retained earnearnings 1,725,000
1,725,000

ot: as' roes an. Equity 1,125,000

1,462,500

Assume that there is a goodwill impairment of FC20,000 in 2031 (deemed to be

'. 8,512, 00

'. 8. 87.500

progressively occurring throughout the year). Further assume that the average
Relevant exchange rates are:
 emzew-P ?sdaddentut&

%,zet;74s &menu, ?maeetentue & ?tetaintratt 617

-.---.-, SS 1 = 45
7"616

=P42.50

f Bowing foreign currency denominated assets: Accounts Receivable of

SS = P 47. r0

the -° and prepaid Asset of FC100. The historical rates of Accounts

SS = P 43.75
Fpci _d_1:p000.3

d Prepaid asset are FC1=P30 and FC1=P20 and Pl= 2Yen

and

=P40
receivable respectively. The exchange rate on December 31, 2031 is FC1=P40

4Y n, r
7E,
yen. In the separate statement of financial position of Honda Phil. on

an January 1, 2022. Income of

th

Dnecember 31, 2031.

the years and the subsidiary
declared e
div4-.1.±ert-',1 ward-, 575..CCC cc: September 12,-
d;
2022 and none were
declared
lfaaa's
Req. 1: What is the book value of accounts receivable and prepaid asset,

bares

Req. L: How =ct s the translation adjustment for year 2023?

a. P15.093,750 =edit
PePp43c00ti,,v0:0010031?aanndd PP42; 000000
c. P6,000,000 debit
b. P9,093,750 credit
c. P40,000 and P2,000
d. P9,093,750 debit

Req. 2: How much is the

cumulative translation adjustment for 2023?

a. P9,093,750 credit
RcLeq.P327W0h0aatnids Pt4,he00b0ook value oac coulltsofremceniavnaobilael
apnodaiptiroenpaiodf Hasosnedta,
c. P15,093,750 credit
b. P8,531,250 debit
respectively, in the Consolidated Statement
d. P13,125,000 debit

Japan?

a. Y120,000 and Y6,000

Answer 1) A 2) A
b. Y90,000 and Y4,000

c. Y120,000 and Y8,000

Suggested Solution
d, Y90,000 and Y24,000

Year 2022

Net Asset, beg. FC Rate

Peso

Net Income 1,725,000 45

77,625,000

Answer 1) C 2) A
Dividend 1,200,000 43.75

52,500,000

Net asset, end. (75,000) 40

(3,000,000)

Suggested Solution
Net asset, end at closing rate 2,850,000
127,125,000

Req. 1 C
 Translation adjustment - 2022 - Debit 2,850,000 42.50
121,125,000

(6,000,000)

Monetary Item: Accounts Receivable = FC1,000 x P40 = P40;000 (Closing rate)

Year 2023
Non-Monetary Item: Prepaid Asset = FC

Net Asset, beg.

x P20 = P2,000 (Historical rate)
FC Rate
Peso Req. 2 A

Net Income (1,462,500 - 1,125,000) 2,850,000 43

121,125,000

Dividend 337,500
45
15,187,500
Net asset, end.
Accounts Receivable = P40,000 x 3 yen = 120,000 yen (Closing rate)

Prepaid Assets =P2,000 x03 yen 6,000 yen (Closing rate)

Net asset, end at closing rate 3,187,500
136,312,500

3,187,500 47.50
151,406,250
Translation adjustment - 2023 - Credit

Add: Translation Adj. - beg.

15,093,750

Cumulative Translation Adjustment 2023

(6,000,000 Problem 30: Certain balance sheet accounts of a
foreign subsidiary of the

"ariti Co. had been stated in Philippine peso as follows:

2023 Average rate (42.5 +47.5)/2 = 45
P9,093,750

Stated at

currency of Honda Phil. is peso while the presentation currencY of itst hasfl.
Current Rates
 Problem 29: Honda Phil.
Accouts Receivable - current
Honda Japan is yen. For the year. ended December 31, 2031, Honda
Prepaid T
Historical Rates

Accounnts Receivable - long term P280,000

is a subsidiary of Honda Japan. The functional
2°°chvill Lo urance
P308,000

Total P140,000

parent'
P154,000

P70,000

P77,000

P112,000

P119,000

P602,000

P658,000
eavreocei 714*w-taw & 7,taaolatemo 619

90,,e04
eterfpxy 7fici*Alderiog & 71444044 618

currency of
this subsidiary, what total
Solution

Suggested raggeisiltieodri_011u2moillion) 2 = 4.5 million

If a foreign currency is the functional balance sheet
for the preceding items? (9
should have been included in Charm's
c. P609,000
a. P630,000 d. P658,000.
r riatt..9-9al ale
C21 million
b. P602,000
€12 million

9 million

Answer B
$0.50

-Direct quotation 1/E2

$4.5 million
Suggested Solution
t

All assets should be translated at current rate (closing rate) at the balance

sheet date.

Problem 33: A subsidiary of Darwin Inc.., a Philippine company, was located in

a foreign country. The functional currency of this subsidiary was the euro. The

Problem 31: An entity acquired all the share capital of a foreign entity at a
subsidiary acquired inventory on credit on November 1, 2030, for 438,000 euro

consideration of 18 million yen on June 30, 2020. The fair value of the net
that was sold on January 17, 2031 for 569,400 euro. The subsidiary paid for
 assets of the foreign entity at that date was 12 million yen. The functional

the inventory on January 31, 2031. Currency exchange rates between the
currency of the entity is the peso. The financial year end of the entity is

December 31, 2020. The exchange rate at June 30, 2020, and December 31,
dollar and the euro were as follows:

2020, were 1.5 yen = P1 and 2 yen = P1, respectively. What figure for goodwill
P0.19 = 1 euro

November 1, 2030

should be included in the financial statement for the year ended Dec. 31, 2020?
December 31,2030 P0.20 = 1
euro

a. P3,000,000 c.
P4,000,000
January 17, 2031 P0.22 = 1
euro

b. 6,000,000 yen d.
P6,000,000
January 31, 2031 P0.23 = 1
euro

Average for 2031 P0.24 = 1

euro

Answer A
Req. 1: What figure would have been reported for this inventory on Porter's

consolidated balance sheet at December 31, 2030?

Suggested Solution
a. P2,190,000

c. P2.305,263
Acquisition Cost
18,000,000 b.
P87,600

d. P83,220
FMV of net assets
(12,000,000)
Goodwill
Req. 2: What figure would have been reported for cost of goods sold on Porter's

6,000,000
Indirect to Direct quote: P1/2 yen
consolidated income statement at December 31, 2031?

0.50 a. P87,600
Total Goodwill in Peso

P3,000,000 b.
P105,120 c. P 1,825,000

d. P96,360

Answer 1) B 2) B

Problem 32: An entity has a subsidiary that operates in a foreign cowl

try.•. The

subsidiary sold goods to the Parent entity for €21 million. The function,;

Suggested Solution
agroup
profit that will be currency of the entity is the dollar. The cost of goods sold
was C12 Req. 1

gotods were recorded by the entity at $10.5 million (E2 = $1) and were all
unsoldE1.5

at the year-end of December 31, 2030. The closing exchange rate was d at
December 31, 2030 - closing rate

What is the value of the intr

Multiply: Foreign Currency
P0.20
December 31, 2030?
'11 b eliminate 'fatal Pore* loan

438,000

a. $2,050,000
Req. 2

P87,600
b. $6,000,000 c.
$4,500,000

d.
$3,500,000
Average rate f

Total Foror 2031

Answer: C
Tot Pore* loss eigp. Currency
P0.24
438,000

P105,120
9cre4g eavteffeet 714.0aeteaa & 7uucalatio« 621
Depreciation (related assets were purchas
provision for doubtful accounts
Rent
The exchange rates for Thailand Baht
December 31, 2030
Average for year ended Dec. 31, 2030
January 1, 2025
What total peso amount should be
consolidated income statement to reflect
a. P2,176,000
C.
b. P2,183,000
d.
ed on January 1, 2025)
120,000
80,000
200,000
were as
P5.40
P5.44
P5.50
follows:
included in the Ong Corporation
these expenses?
P 2,180,000
P3,132,000
Answer A
Suggested Solution
Depreciation (related assets were purchased on Jan. 1, 2025)
Provision for doubtful accounts
Rent
Total Expenses
x Average exchange rate
Total Translated Expenses
120,000
80,000
200,000
400,000
5.44
2,176,000
Problem 36: Wolverine Company owns a subsidiary in Canada whose balance
sheets in Canadian Dollar for the last two years follows (in thousands):
Assets
Cash and cash equivalents
Dec. 31, 2030
and e
Dec. 31, 2031
Receivables
Inventory
Property
equipment-net
Total
Liabilities and Equity
Accounts payable
t=a14-esiltran. g'toenrrn debt
stock
Retained
earnings
Total
Wolverine f
was 40 otraed the subsidiary on January 1, 2030 when the exchange rate
anadian
Dollar for 1 Philippine Peso. The exchange rate for 1
C$25,000
112,500
170,000
250,000
C$557, 500
C$20,000
137,500
180,000
225,000
C$562,500
C$65,000
312,500
125,000
55,000
C$557, 500
C$85,000
275,000
125,000
77,500
C$562,500
eNntwcy 71a.mactiose & 744,4 6zo
Problem 34: The US Subsidiary of Manila Corp submitted on De__
2030 the following financial statements for consolidation purposes. The 31,
functional currency of Manila.
Relevant exchange rates are as follows:
Current rate P50; Historical rate P46; and average rate P59. The translated
retained earnings on January 1, 2030 of US subsidiary in Philippine peso is
P1,790,000.
What is the cumulative net exchange gain (loss) as at December 31, 2020?
a. (7,930,000)
c. 5,630,000
b. 7,930,000
d. (5,630,000)
Answer B
Suggested Solution
Monetary asset (1,080,000 x P50)
Non-monetary assets (810,000 x 50)
Total assets
Monetary liabilities (972,000 x P50)
Ordinary shares (648,000 x P46)
Retained Earnings
Cumulative Translation adjustment
Total liabilities and SHE
Retained Earnings beg
Net Income (108,000 x P59)
Retained Earnings end
rta„
, .
Problem 35: A wholly-owned subsidiary in Thailand of Ong C°'1:te a sta
certain expense accounts for the year ended December 31, 2030 ' -
Thailand Baht, as follows:
Monetary Assets
1,080,000 Sales
Non-monetary assets
Monetary liabilities
Ordinary shares
810,000
(972,•00)
(648,000)
Expenses
Net income
Retained
earnings beg
1,350,000
10 >000
162,000'
Retained earnings end
(270,000) Retained
earnings end
270,000'
- 54,000,000

40,500,000
94,500,000
48,600,000
29,808,000
8,162,000
7,930,000
94,500,000
1,790,000
6,372,000
8,162,000
90104* ev-e-e4 7,4-44--re&e& 714401.4404, 622
Philippine Peso on December 31, 2030 had increased to 45 Canadian
and to 35 Canadian Dollar on December 31, 2031. Income earned
even). Dollar
the year, and the subsidiary declared no dividends during its first two ,.3' over
of
existence.
cumulative translation adjustment for 2031? (Round-off to 3
c. P975,000
d. P865,000
9ovrei9a &dime-Nay 7744044riag B 71404114a0K 623
If the subsidiary's functional currency is the currency of a
hyperinfliaditiaryonariryi
what is the 2029 depreciation expense for the Japanese subs'
peso, for the translated stater. epri2t8o8f0i,n0c0o0me?
aec.°11:8111:6"880
d. P750,240
b. P720,000
Answer:
How much is the
decimal places)
a. P1,350,000
b. P1,912,500
Answer D
Suggested Solution
Year 2030
FC
Rate
Peso
Net Asset, beg.
125,000,000
0.025
3,125,000
Net Income
55,000,000
0.024
1,320,000
Dividend
Net asset, end.
180,000,000
4,445,000
Net asset, end at closing rate
180,000,000
0.022
3,960,000
Translation adjustment - 2030 - Debit
(485,000)
livnerinflationary Economy
ine
Problem 37: The subsidiary in Japan of Mariwasa Corporations a P" 2029.
enterprise has plant assets with a cost of 7,200,000 yen on December 31: ed in
Of this amount, plant assets with a cost of 4,800,000 yen were acquired
2027 when the exchange rate was 1 Php = Y 1.600; and plant assets witha cost
Y
of 9f72,400,000 yen were acquired in 2028 when the exchange rate was 1
the
1.799. The exchange rate on December 31, 2029 was 1 Php = 2.°°°„' and p dial
depreciates
l
weighted average rate for 2029 was 1 Php = Y 1.919. The Japanese
h c
epreciates plant assets by the straight line method over a 5 years econwili
with no residual value.
eisotesdinSgo rate: 7,
Suggested
7,200,000/5 years = 1,440,000 x Php 1/Y2 = 720,000
PUrsoebclem 38: Josh Inc., is foreign subsidiary of JI DJ Corp. that is operating
in a
hyperinflationary economy. The financial position in December 31, 2030 is
presented below:
Cash
10,000
Accounts Receivable
120,000
Inventory
80,000
Equipment
400,000
Accumulated Depreciation
(80,000)
Total assets
530,000
Loan payable
100,000
Share Capital
350,000
Retained Earnings
80,000
Total liabilities and SHE
530,000
The equipment is acquired on January 1, 2029.
The share capital was issued January 1, 2029.
There are 6 months inventory held by the company.
The following are the relevant general price indexes:
January1, 2029
Average 2029
January e rag e , 10 0
1, 2030
3
December 31, 2030
The following
2
Av
1, 2030
are exchange rates
January
Decelr ib e2r03301, 2030
Average
Year 2031
Net Asset, beg.
Net Income (77,500 - 55,000)
Dividend
Net asset, end.
Net asset, end at closing rate
Translation adjustment - 2031 - Credit
Add: Translation Adj. - beg.
Cumulative Translation adjustment - 2031
Note: Change first the exchange rate to direct quotation
FC
Rate
180,000,000 0.022
22,500,000 0.025
202,500,000
202,500,000 0.029
Peso
3,960,000
562,500
4,522,500
5,872,500
1,350,000
485,000
868,00°
in U.S dollars
100
120
130
140
150
20
25
22
eammosi 710maikrake
%wow eamemoy

7,,suenalikoszt
7si.votatie« 625

Rea. lz Bowsaw* is the translated amount of total assets?

c. P13,250,000
of min/lossin/loss on sale of machine in a hyperinflationary
a. p:3,3512,857
an

What is the

d. P17.250,000
F1.7....Nti&S7
C. ($2.200,000)

cononl?

d. P42.000.000

e SI-00"°°)
Rec. -.It The re.szated aunt of loon payable is:
a' 00,000

c. $100,000
p.z.ay.,.a.lo

d. 5150.000

ns‘wr A

B C
Suggested Solutiorz

5, 000,000

Cost
4.000,000
 S....goes:zed So:-....acr:
An:umulated Dep. (85M / 5 yrs. X 4vrs)

1,000,000

Rea_ 1

Book value
Cash
810,000
4,000,000

Selling Price
3,000.000
A.mor;.= Receivable
120.000

Book value (1,000,000 x 300/100)

Talverars (80,000 x 150/ 140)
85,714
1,000,000

Gain on sale of equipment

Eqc±pment (-100,000 x 150/ 100)
600,000

Acci.=.11ated Depreciation (80,000 x 150/100)

20.000)

assets
S695,714

x Foreiga exchange rate

P25

Problem 40: Blued Inc., a subsidiary of Pink Corporation had the following

Total assets - Translated

P17,392,857

expense accounts denominated in U.S dollars for the year 2030:

In U.S Dollars

Req. 2
Depreciation expense

Loan payable is a monetary item, therefore no need to restate.

(related assets acquired June 1,2028j
1,000
Doubtful accounts expense

sal(aryrelaetexdpeanssseets recorded April 1, 2030;

500

Problem 39: Marie Corporation, a foreign subsidiary purchased a machine for

(approximated occurred evenly during the year)

12,000

$5,000,000 on January 2, 2030. The machine was depreciated over 5 years

Insurance expense (paid August 5, 2030)

1,000

using the straight-line method with no salvage value. On December 31, 2033,
Utilities expense (evenly occurred during the year)

5,000
the machine was sold for $4,000,000.
The followlunngearle, 2028

Aprilexchange rates:
The general price indexes are as follows:

50.00

April 1, 2030

August 1, 2030
51.00
January 1, 2030

100

51.50
December 31, 2030
December 31, 2030

120

49.75
October 1, 2033
Average for the year ended
280
52.00
December 31, 2033
Average for the 4th quarter

300

50.25

The relevant exchange rates for every U.S dollar were

as follows: Req. 1,
How oofwBiumeudcihs
tihsetchuerrternancysloaftaedhyirpiesriunraflnacteionearyxpenecsoen, oimf yt?he
functional

December 31, 2030

b. P50,250

P30
c. P52,000
December 31, 2029

P25
d. P49,750
December 31, 2027

P28
December 31, 2030 - Average
BRIe-ucle.c12istin°owtilithtich

is the translated salary expense, if the functional P26

currency of

e currency of a hyperinflationary economy?

70,lee94t eaVte4felf 7140401a64C 7tetodeleio. 627

pomp. &maw/ 77anuace•m 4 7,40,_

c. P603,000

-
140.1 626 are as follows:

a. $12,000 d. P597,000

The general price 1nd027exes 100

b. P624,000
120

2028

e, if
150

Req. 3: How much is the translated doubtfa h ul accoun rinfl t expensthe fo„

2029
 economy?
•tctio 200

currency of Blued is not the currency of c. P2ypeationary

2030

4,875

160

Average 2030

a. P26,000 d. P25,500

b. P25,125

The following are relevant exchange rates:

Req. 4: How much is the translated depreciation expense, if the fi,„

December 31, 2027

20

-
tctionai

currency of Blued is the currency of a hyperinflationary econom

3/
December 31, 2028

C. P49,750
22

a. P52,000 d. P50,000
December 31, 2029

18

b. P50,250

December 31, 2030 25

Average 2030 24

Answer 1) D 2) B 3) A 4) C

Req 1: How much is the total restated totpalzi5novoenot000ry of the company?

 Suggested Solution

Req. 1
d. $91,429

Insurance expense $1,000 x P49.75 closing rate = P49,750

RII:eq.P$221:13'4:6o!°°:°uch is the total assets in the consolidated financial

statements?

a. $,:00,w00 much

Req. 2
c. $800,000

Req. 3 $1,020,000

R:0

Salary expense $12,000x P52 = P624,000

d. P40,000,000

b. P25,500,000
 Req. 3
uch is the total retained earnings in the consolidated financial

Doubtful account expense $500 xP52 = P26,000

statements?

C. (P6,000,000)

Req. 4
b. $( $124400 0, 00000 ) d. (P5,760,000)

Depredation expense $1,000 x P49.75 = 49,750

Req. 4: Assuming the functional currency of Iram is not the currency of a

hyperinflationary economy, wha; is the translated amount of inventory?

Problem 41: Iram Inc., a foreign subsidiary of JIDJ Corporation operates in a

a. P2,500,000

c. P2,400,000

b. P1,920,000

hyperinflationary economy. The financial position at De3cember 31, 2030 is

d. P2,000,000

presented below:

_Req. 5: Assuming the functional currency of Tram is not the currency of a

In U.S dollars
 Cash 500,000
hyperinflationary economy, what is the translated amount of total assets?

a. P19,200,000

Accounts Receivable 20,000

b. P800,000 c. P20,000,000

Inventory 80,000

d. P25,500,000

Property plant and Equipment - net (acquired 2027) 200,000

Total Assets 800,000

Answer 1) A 2) B 3) C 4) D 5) C
 Accounts Payable 60,000

600,000
Suggested Solution

Share capital (issued 2027)

Req. 1

Retained Earnings 140,000

Total Liability and SHE 800,000

Inventory ($80,000 x 200/160)

100,000

There were 6 months inventory held by the company.

Req. 2
Cash
Accounts Receivable
Inventory (80,000 x 200/160)
PPE - net (acquired 2027) ($200,000 x 200/100)
Total restated assets
x FC exchange rate
Total translated assets
74"ref.94 ea vtotev 714,04 „
$500,000
20,0
10000
,000
400, 00
q610200
P25
P25,500,000
704,44 &mow 7,ragdactiaa 7uutage..b. 629
functional currency is the currency of
C. P27,720,000

What
D
b
CC
ents?
tatern- no0 00°
Ora. d equipment on December 31, 2030 in th
hinoY
“bsidiarY's mount should be rde.ppor;e0d,
P720,720,000
a "YPe •
ng amount of
s
756,-
9• P
'' 831,6°°'°u
Req. 3
Total assets
Less: Accounts payable
Less: Share capital (600;000 x 200/100)
Retained Earnings
x Exchange rate
Translated amount
Req. 4
Inventory $80,000 x 25 closing rate = P2,000,000
Req. 5
Total assets $800,000 x P25 closing rate = P20,000,000
1,020,000
60,000
1,200000
(240,000)
25
(6,000000)
Answer
suggested Solution
Cost
Accumulated Depreciation
Book Value
x Price index
Restated amount
x FC exchange rate - closing
Translated amount
Year 2027
12,000,000
4,800,000
7,200,000
350/120
21,000,000
30
630,000,000
Year 2029
3,000,000
600,000
2,400,000
350/125
6,720,000
30
201,600,000 831,600,000
Total
Problem 42: Paul Corp., a foreign subsidiary, has a machinery and equipment
account on December 31, 2030 in terms of U.S dollars are as follows:
Cost
Purchased in December 2027
$12,000,000
Purchased in December 2029
$3,000,000
The general price index for:
Year 2030
Year 2029
Year 2027
Average 2030
The relevant exchange rates for every U.S dollar were as follows:
December 31, 2030
December 31, 2029
December 31, 2027
December 31, 2030 - Average
problem 43: The best definition for direct quotes would be "direct quotes
ameaLuo Exchange rates at a future point in time"
measure
much domestic currency must be exchange to receive 1 foreign
H
b.
currency'
c. How much c h foreign currency must be exchanged to receive 1 domestic-
currency'!
d. Currency or spot rates"
Problem 44: The date of transaction is:
,. An indirect quote
Problem d. The date when the transaction is recognized.
cb: ThThee ddaattee wofhreencoeradishngisthterautrasfnesrraectdion in the books of
the company.
a. The date when liability or receivable is settled.
ae,r17 will buy you ledialreect:: A bank dealing in a foreign currency tells you
that the foreign
quote u 130.75.the bank has given you
c. A forward rate
Accumulated
Depreciation
$4,800,000
$600,000
350
125
120
300
cl. The official (fixed) rate
P28 P25
p28
P30
Problem
::be referred to as the
cn.a Philippiney r equr sentity pa yrnpurchasesen t in U.S
edcloul ap n. eInnt this a U.S company.
his transaction, the
dTholelarijw.So
7° 'e ear:twee/ 774,04ered„ 4 4,

7o'ze &away 714044a6,4t& 7=4444.64,631

• ta44,41,4,4

c. Denominated currenc

a. Selling currency
d. All of the above y
settlement payable. Did the foreign currencies increase

b. Purchasing currency

ble and P°1111he date of thenransactioInnctroeathsee

ri d a7tre d? ecrease

record the foreign currency

t Eur Pound

reels° hie from

Problem 47: The Company should
so va

tra, io Pe
Increase

—.IS 4e,, A
initially at
Decrease
a. Average exchange rate at the date of transaction
Increase

Decrease Decrease

b. Spot rate at the date of invoice

C

Decrease Increase
 c. Spot rate at the date of transaction
D

d. Closing spot rate as of the balance sheet date.

c. C above

d. D above
Problem 48: Which of the following items would not result
a above

e challge above
gain/loss after conversion?

a. Monetary asset
probAiera 55: According to PAS 21, a foreign operation is:

tohreesa-
b. Non-monetary asset carried at historical cost

ctivities are not an integral art of the

c. Monetary liability

d. Non-monetary liability carried at fair value

la; Aarit?oearrneell.gat °rPeeprraetsienngtiantifvnerewignherseh

parent.

Problem 49: The accounting for the effects of changes

where the activities are conducted in

in foreign exchange rates

 is prescribed under which standards:
°coinnutgnytweityntthtnorfotehat of the parent undertaking.

a. PFRS 9
c. PAS 29

b. PAS 21
d. PFRS 3
11:d5drec6eehn:nr°Ptja I:az Corp, a Philippine company buys merchandise from a
foreign

problem I :a ned ibn irYt undertaking

denominated in Philippine peso. Which of the following statements is

company mo

Problem 50: The presentation currency is:

true?

a. Used in the parent's ad in the group's consolidated financial statements

a. If the foreign currency appreciates, a foreign exchange gain will result.

b. The currency which results to largest exchange rates

b. If the foreign currency depreciates, a foreign exchange gain will result.

c. The currency of the country where the entity's operations are based.

c. No foreign exchange gain or loss will result.

d. The local currency of a foreign operation in which it reports

d. If the foreign currency appreciates, a foreign exchange loss will result.

Problem 51: If the exchange rates fluctuates significantly, the use of

Problem 57: Jimms Corp., a Philippine company buys merchandise from a

initial recognition.
on

foreign company denominated in the foreign currency. Which of the following

statements is true?
a. The closing spot rate at balance sheet is inappropriate.

b. The average rate is required

a. If the foreign currency appreciates, a foreign exchange gain will result.

c. The use of average rate for a period is inappropriate

b, If the foreign currency depreciates, a foreign exchange loss will result.

d. The use of closing spot rate is appropriate.

C. If the foreign currency appreciates, a foreign exchange loss will result. .

. Any gain or loss will be included in comprehensive income.

Problem 52: The following are examples of monetary items, except:

a. Accounts Payable

dPertoblem 58: Which of these considerations would not be relevant in

b. Notes Receivable
c. Inventory

a. ennining the entity's functional currency?

d. Cash surrender value

L. _ e currency in, which finance is generated

C. The Th currency in that influences the costs of the entity
Problem 53: The following are examples of non-monetary item, excep t:
a.

pp hers d. The yrrencyhtehaftoirseitgnhe most

internationally acceptable for trading
• Share Premium
c. Advances to and from su

L' rrencY in which receipts from operating activities are retained.

d. Bonds payable

Problem 59:
Prob
m 54: Vladimir Inc.,.

S1MSeque 4.7 T

a Philippine
company, had a euro receivable ffrro°0111
nuy re_t
exports to S •
currency transaction monetary item shall be

b.' r.,,i'lisi_to

England. VIal?-airj: and a British pound payable resulting from inIP°r.,t.. euro
Each real ate ranslated using: slated

dimir recorded foreign exchange gain related to both

i

rate when the fair value was determined

i
c.
d.
c.
d.
%wog eenseacet 7tarrJeteteos 8r 7e
c. Closing rate
d. Average exchange rate
from exports to Russia and a euro payabl et resulting trig fro
Problem 60: Filamer Company, a Philippine company, had
illruibinleP°::LeSof•re:IlleiVit4alit
rta-,– a
is,e
Fil er recorded foreign exchange loss re a e o both its
euro payable. Did the foreign currencies increase or decrease in doll
._.,.
from the date of the transaction to the settlemEuenrot date?
ktellar "41(1
vakie
Ruble
A
Increase
B
Increase
•
Decrease
D
Decrease
a. A above
b. B above
Problem 61: When a Philippine company purchases parts from a foreign
company, which of the following will result in no foreign exchange gain ,
or loss?
a. The transaction is denominated in Philippine peso.
b. The transaction resulted in an extraordinary loss.
c. The foreign currency appreciated in value relative to the Philippine peso.
d. The foreign currency depreciated in value relative to the Philippine peso
Problem 62: The foreign currency transaction non-monetary item measured at
fair value in a foreign currency shall be translated using:
a. Historical rate
b. Exchange rate when the fair value was determined
c. Closing rate
d. Average exchange rate
Problem 63: The foreign currency transaction non-monetary item measured in
terms of historical cost in a foreign currency shall be translated using:
a. Exchange rate at the date of transaction
b. Exchange rate when the fair value was determined
c. Closing rate
d. Average exchange rate
for
Problem 64: if the company change its functional currency, it will be acc minted
a. Retrospectively
b. Prospectively
Problem 65: The opening net
the:
a. Historical exchange rate
b. Closing exchange rate
?wipe Lay 71euracietlac& 74:44/0434, 633
b.
47.:
an
A business purchases goods from a foreign supplier. In this
problem' how should the accounts payable and inventory be classified for
foreig° c the accounts payable and inventory are non-monetary items
anon-monetary item and the inventory is a
items.
r). The accounts tnran. eosatchnurraltenoy tranpasyaacbtlieonirsepaortnionng-?in
lints
item

monetary
ts payable and inventory are monetary items.
Goth
accounts payable is a monetary item and the inventory is a non-
monetary the
a, If the foreign currency appreciates, a foreign exchange gain will result.
monetary item
problem 68: A Philippine company sells merchandise to a foreign company
denominated in Philippine peso. Which of the following statements is true?
b. If the foreign currency depreciates, a foreign exchange gain will result.
c. No foreign exchange gain or loss will result.
d. If the foreign currency appreciates, a foreign exchange loss will result.
e. If the foreign currency depreciates, a foreign exchange loss will result.
Problem 69: A spot rate may be defined as
a. The price a foreign currency can be purchased or sold today.
b. The price today at which a foreign currency can be purchased or sold in the
future.
c. The forecasted future value of a foreign currency.
d.
The Peso value of a foreign currency.
liabilities?
Problem 70: In translating a foreign subsidiary's financial statements, which
exchange rate does the current method require for the subsidiary's assets and
act. ttuhhege exchange rate in effect when each asset or liability
bc.. the average exchange rate for the current year.
Problem 71.
b, c
a' Sales
a calculated exchange rate based on market value.
Cost of
or:
foreign operations,
:pxoctharantgee :sautes used effect as of the balance sheet date.
g.00Indstrsaonldslating the financial statements of a fore
c. Share premium
d. Bonds payable was acquired.
632
Increase
Decrease
Decrease
I ncre as e
c. C above
d. D above
c. It is not allowed
d. Either B or C
investment of the period needs to be restated at
at
d. Previous year's exchange closin5r
c. Average exchange rate
determines its functional currency
change in those
pi°
functional cti •
The
fig tra-
66: When rrency is not change unless there is a eh
•
the
year company
depending on the functional currency events and condition.
the entity
None °f t
t° anent and cannot be change
naactiona,
a.
deriP"-
ever/
is change
idtesirestin
ft is Pe—he Choices
a.
b.
c.
90,e9N eeet?efeef 714.4htericlor 4 7,,,,o, . lriliPP-
Problem 7: What is a companys functional currency?
',44„‘ 64
a. the currency of the primary economic environment in whi h
b. the currency of the country where it has its headquarters-c' it operiltn
-4
c. the currency in which it prepares its financial statements.,
d. the reporting currency of its parent for a subsidiary,
a. the calculation of exchange rate gains or losses on individual t_
Problem 73: In accounting,
in foreign currencies. the term translation refers to
s for the c5rar.
lansa,
d. a procedure to prepare a foreign subsidiary'
b. t
. the calculation of gains or losses rom all transaction

he procedure required to identify fa company's functional eurren

s financial atatYee
lls
"lent
consolidation.
S for
Problem 74: The following are the factors in determining the fun
currency, except:
etienai
a. whether transactions with the reporting entity are a hioi,
proportion of the foreign operation's activities.
high or a low
b. the currency that mainly influences labor, material and other
providing goods or services
.
costs of
c. The currency that mainly influences sales prices for goods and services
d. The currency of the country whose competitive forces and regulations
mainly determine the sales prices of its goods and services.
e. None of the choices
Problem 75: How is the disposition of the translated gain or loss reported on
the parent company's financial statements?
a. Cumulative translation adjustment as a deferred liability.
b. Other comprehensive income.
c. Retained earnings.
d. Net income/loss on the income statement.
Problem 76: A historical exchange rate for a foreign subsidiary is best
described as:
The rate from the prior year's balances.
The January 1 exchange rate.
The rate when the common stock was originally issued for a purchase
transaction.
d. The rate at date of acquisition for a purchase transaction.
Problem 77: The translation adjustment from translating a foreign subs
C.
financial statements should be sho
as
a. an element
d financial
menetnst. of the notes which accompany the consolidate
ccompany e
statements,
consolidated
a revenueo
rmeexnt expense (depending
the balance) on the con
ng on e
income statement.
9ov/14 &moray 7:euktactitut 71444110.zu 635
liability
A pending on the balance) on the consolidated balance
t or Ilau
d. aso:r
I)
nt of stockholders' equity on the consolidated balance sheet.
a cornP°11e
disposition of the remeasurement gain or loss oss reported
,13: How is the
00 thoethPearr
s financial statements?
asset.
problem'
noble° lent corriParlY'
a' Retain d
13• Net i
d. Cumulative
statement
France. C-10 concluded that
Which one of the following statements would justify this conclusion?
subsidiary's functional currency was the Philippine ricceo°mInearningseP/relohsesn
!
10 Corp.
were with companies in the
c.
Illative translationownadjeudstamseunbtsaidis subsidiary deferred asset.
problem 79" C-
the su
e peso.
onclusion?
b. C-10's functional currency is the peso and C-10 is the
a. C-10 is located in the Philippines
c. Most of the subsidiary's sales and purchases we
eir functional currency.
parent.
Problem 80: When translating the financial statements of a foreign operation,
Philippines
.
d. C-10's other subsidiaries all had the dollar as th •
which of the following transaction procedures is incorrect:
a. All resulting exchange differences shall be recognized in other
comprehensive income
b. All resulting difference shall be closed to retained earnings account
c. Asset and liability are translated at closing rate
d. Income and expenses are translated at spot exchange rate at the date of
transaction. For practical reasons, it may be translated at the average
exchange rate.
59
C
67
D
75
B
60
D
68
C
76
D
61
69
77
D
62
70
78
C
63
i=1
71
D
79
C
U+
64
72
A
80
B
65
A
73,
D
81
-
C
66
A
74
E
82
-
For
uestions 43 - 80
43 g
44 D
51
52
45 B
53
46 c
47 c
48 B
49
50 A
54
55
56
57
58
ermorey 7reur.tacteoft & 71444)(4
r
n in Mana n Forel
f. r Derivatives an
Under
9 Derivative
wing char t
Acco
Pas 39 Par.
other contract have the folio '
It is a financial instrument or
ponse to the change in a specified Eke.'"
inte
ties,
anges in res
(a) its value ch
. commodity price, forei

financial instrument price, c

. .

,
gn exchange, r rest r
tes, credit rating or credit index, or other variable ate' ihcleElkte'
of a non-financial variable that the variable is not ' Provideoi
prices or ra ,
sPee'r 4 in
the case o
contract (sometimes called the 'underlying);
lie to a
party to the co
net investment or an initial net '

investment (b) it requires no initial ne

.
for h
smaller than would be required or ot er types of contracts thatnt that is
expected to have a similar response to changes in market factors;- we'll(' be
arid
(c) it is settled at a future date.
The following are examples of Derivatives
a. Forward Contract-are private agreements between two parties
particular asset with each other at an agreed specific price and t'
y traded on a
to trade
b. Future Contract- are standardized contracts that is public' --e
future exchange to buy or sell a certain underlying instrument at a certain
date in the future, at a specified price.
c. Option Contract - is an agreement between a buyer and

gives
asset seller that *v
the purchaser of the option the right to buy or sell a particular as at a
later date at an agreedupon price.
o
d. Swap - is an agreement between two parties to exchange cash flows n
determined date or in many cases multiple dates. Typically, one party
agrees to pay a fixed rate while the other party pays a floating rate.
Definitions relating to hedge accounting
A firm commitment is a binding agreement for the exchange of a specified
quantity of resources at a specified price on a specified future date or dates.
A forecast transaction is an uncommitted but anticipated future transaction.
A hedging instrument is a designated derivative or for a hedge of the risk. of
changes in foreign currency exchange rates only) a designated non-derivative
financial asset or non-derivative financial liability whose fair value or cash flos
.
are expected to offset changes in the fair value or cash flows of a designated
hedged item.
A hedged item is
forecast
transaction g
em is an asset, liability, firm commitment, highly probable
fty
to risk
or net •
et investment in a foreign operation that (a) exposes
as
the en 1
risk of changes in fair value
and (b) is designaw
being hedged.
e or future cash flows an
ate'
7av,e19, erevtotiet 71rorderztioa& 71404/4tiog 637
is the degree to which changes in the fair value or cash
110601. the ' cf ahie or cash flows of the hedging instrument
gowsges in the 'al
..d. effec-i,„"daed item that are attributable to a hedged risk
. _ fair v

+Welles°
loss of changes in
ell° . ,ountill
gaizes the offsetting effects on profit or
d e isc-- ,jog reco
fle accoun` °he hedging instrument and the hedged item.
Hedge values of t
liedOlig relationships alue e d geoa: rraeliability hofetd three eo oftrYpthaeens
exposure to changes in fair value of
unrecognized firm commitment, or a
A. iiFienronrjezegdainasset
hedge ofof changes' in interest rates. Such as a hedge could be entered
g exposure to changes in the fair value of fixed rate debt instrument
identified olirti°n
of
the issuer or by the holder.)
to a
or loss from remeasuring the hedging instrument at fair
particular risk and could affect profit or loss. (Ex ple:
of such an asset, liability or firm commitment, that is
an
st: by
attributable
component of its carrying amount (for a non-derivative hedging
value (for a derivative hedging instrument) or the foreign currency
ri
instrument) shall be recognized in profit or loss.
The gain or loss on the hedge item attributable to the hedge risk shall
adjust the carrying amount of the hedge item and be recognized in
profit or loss. This applies if the hedged item is otherwise measured at
cost. Recognition of the gain or loss attributable to the hedged risk in
profit or loss applies if the hedged item is an available-for-sale financial
asset.
B. Cash flow hedge: a hedge of the exposure to variability in cash flows that
(i) is attributable to a particular risk associated with a recognized asset or
(leiaxbaimlitpyle(such as all or some future interest payments on variable rate
debt)
or a highly probable forecast transaction and (ii) could affect profit or loss.
- The portion of the gain or loss on the hedging instrument that is

Tscdhhoete male ineffectivelnniprenheentsoivbee inacnomefefe(cotcivie) hedge shall

be recognized in other
g a len° gnsbet jotriorleoeeof a financial ososogn i zpoodr it inopnrooff the
eorgalionsosr 1 o s s on the hedging instrument
If a hedge
sreu justment in
forecast transaction subsequently results in the
.
n of a financial asset or a nancial liability, the associated
shall be e s that were recognized in other comprehensive income
r reclassified from equity to profit or loss as areclassification
forecast cash n he same period or periods during which the hedged
flowsaffect profit or loss (such as in the periods that
Hed
44ft 616
the fair
clleierf egerzeguy 7:40444634 & 714,141.4tewe 639

eane.ey 7aaKaaetio,r 7,4

« 63a red to be
highly effective in achieving offsetting changes

e is
t income or interest expenl.se is recognized).
However, if
expected flows attributable toetohnelnyheifsd hedged
risk, consistently with

The hedge or cash

that all or a portion of a loss recognized in
other corn an eriii
tradtegy• for that particular

,„Tt t d risk mana eme t

expects recovered in one or
more future periocrehetwtY
2. fair
income. will
in rivolnallY documented en e h• 1 effectivgIt is high 31
the following condit. ions are

the °--
ar
tnoaptro% or loss as a reclass ication
adjustment ,,,s, it sO
hedging relationship.

reclassifyot expec
expected to be recovered.
Lne not 111(11.1k
he hedge and in subse quent periods, the h

that is n
Met: At the

subsequently results .
a . expected to be highly effective in achieving offsetting churing
changes in
hedge of a forecast transactiton subsequently

forecast If a
or a non financial riabeigni. in the
1-. alue or cash flows attributable to the hedged risk d
anon-financial n a 1asse
period v
the

ition
asset or non-financial litY' Or a
•-; d for which the hedge is designated.

asfaactino
of the hedge are within a range of 80-125 per

Tletleit actual results o f t

becomes a firm commitment for which fair value hedge accounting

'labty

untitia is b.
then the entity shall adopt (a) or (b) below:

s action that is the subject of the hedge

applied., t
flow hedges, a forecast transaction

'ated gains
and losses that we
(a) It reclassifies the associated .

t ft 1
3. For cash,: highly probable and must present an exposure to variations •
in
other comprehensive income in o pro i or oss as a
reelassirzedin
must be

that could ultimately affect profit or loss.

adjustment in the same period or periods during

which theleati:n

Thcaseheffectiveness of the hedge can be reliably measured, ie the -fair value or

acquired or liability assumed affects profit or loss (such as

in the

4. each sh flows of the hedged item that are attributable to the hedged risk and

periods that depreciation expense or cost of sales is

recognized) - `t

ctlie fair value of the hedging instrument can be reliably measured.

However, if an entity expects that all or a portion of a loss

recognized

in other comprehensive income will not be recovered in one or

more
5 The hedge is assessed on an ongoing basis and determined actually to have

been highly effective throughout the financial reporting periods for which
future periods, it shall reclassify from equity to profit or
loss ° - oss as a

reclassification adjustment the amount that is not expected to

ie
the hedge was designated.

recovered.

IFtoirswaanrda/grFue et mu reenEt xnenhdaenrgwe hCiochn terahcutss

(b) It removes the associated gains and losses that were recognizedin
business agrees to buy a certain amount of rt

other comprehensive income, and includes them in the initial

cost or

foreign currency on a specified future date at a price agreed today. The objective

other carrying amount of the asset or liability.

of this contract is to hedge a foreign currency exchange position in order to

avoid loss, or to speculate on future changes in an exchange rate in order to

C. Hedge of a net investment in a foreign operation as defined in IAS 21,

generate gain.

- Hedges of a net investment in a foreign operation, including a

hedge of

a monetary item that is accounted for as part of the net

investment,
The forward exchange contract arc recorded using the forward rate (rate- at

shall be accounted for similarly to cash flow hedges

which the parties agreed to exchange one currency for another at a future date).
 (a) the portion of the gain or loss on the hedging instrument that is
The forward rate is usually different from the spot rate. The difference between

determined to be an effective hedge shall be recognized in

other
the two is known as discount or premium.

comprehensive income; and

(b) the ineffective portion shall be recognized in profit or loss.

I Forward Rate > Spot Rate

Premium

I Forward Rate < Spot Rate

all of the
Discount

A hedging relaticinship qualifies for hedge accounting if, and only if,

The fo

following conditions are met.

and

contract are used to:

1. At the inception of the hedge there is formal designation

1. Hedge a Foreign Currency Asset or Liability Transaction

documentation of the hedging relationship and the

2. fHedge of Unrecognized Firm Commitment - Under PAS 39. A hedge of tf fair

the

vozeign Currency
documentation objective and strategy for undertaking the hedger. ,the

Investment a ifni

Foreign Operationbe accounted for as a ai

hedged shall include identification of the hedging
inseglitnrutailnttlY'aiesnd!sa:t
3. Heu.eeh.edge or as a cash flow hedge.
 the ged item or transaction, the nature of the risk being hedged ,4he
4,

exposure entity will assess the hedging instrument's effectiveness in

offsel'olvs
Hedge) Foreign Currency Denominated Forecasted Transaction (Cash Hedge in Net
Inyeriss

posure to changes in the hedged item's fair value or cash

h Flow

are Sre) "0- the foreign exchange gains or losses on the hedging instrument
attributable to the hedged risk.
fore; P rted as other comprehensive income (equity). Subsequently,

foreign e.„,.,,_

.
the

exchange gains or losses in equity will be reported in the statement

when thc forecasted purd-■
of performance as profitor loss
of
.
.
...ase of
forecasted purchase of equipment is depreciat ltiven
is sold or if the
r 401,,,t),
ed 0
to
currency exchange price movement
4'
5. Speculate
in foreign
or lossare reporte
loss) in th,, fore

d currently
or 1
n - the I
exchange gal
stat,_ all
of performance.
'elk
•
Exchange Gain or Loss
Determinanou ‘,....___,_
Balance Sheet Date
Settle
:eel:tie:mint adtae
and DDifference ( .. )11A7ftfat enarce forward. csr ea t'bue el:tpww: Date : e
balance seeer+ d,

h e
n
and settlement
-
Fair value h, date

forward rate.
date
(P/L) tied
Cash flow hedge
(OCI)
Foreign Currency Asset or
Liability Transaction
Difference between
transaction date and
balance sheet date
forward rate (P/L)
Unrecognized Firm
Difference between
transaction date and
balance sheet date
forward rate
-
Fair value hedge (P/L)
-
Cash flow hedge (OCI)
Commitment
Difference between
transaction date and
balance sheet date
forward rate (OCI)
Forecasted Transaction
Difference between
balance sheet date
and settlement date
forward rate. (OCI)
Difference between
balance sheet date
and settlement date
forward rate. (OCI)
Net Investment Foreign
Difference between
Operation
transaction date and
balance sheet date
forward rate (OCI)
Spe
anon
Di erence between
transaction date and
balance sheet date
forward rate (P/L)
Difference •etween
balance sheet date
and settlement date
forward rate P L
Foreign Option Contracts
It is a contract wherein the buyer (option holder) has the right- but not all
at a
obligation, to buy or sell a given amount of currency to an option seller
later date at an agreed upon price.
2 Types of Option Contracts
1. Call Option - Option to buy
2. Put Option - Option to sell
%me(/' eavww-9 714444414° &e7r pays to the
00pfittie° seller
t° obtain
OP, se
premium _ is. .;
price/
the fixed price agreed at which the own
b.theTizitt, fn ntreoy that the option hold
option
caner of the option.
,r,cercise
strike t--
the
security or commodity.
buY °I. se
underlying
b. In the
c.
option
. eartarey 7Tamhzereom

\60
Forei 0 C money
portlilonlot obtain gain or loss from the exercise of
At the
a. the °Pti°11• ni
ren
ey the holde
raotleY-
c 0
the holder would obtain gain from the exercise of the
can
butthe money- the holder would obtain loss from the exercise of the
t °
g Foreign Currency Option Premiums
te iNlifalue -if at the inception of the option contract is either at the money
option premium has two components:
Thitc:°To°r out of the money, the entire premium is designated as time value. Or it
is
a premium in excess of the option's intrinsic value
c.
Intrinsic Value - if at the inception of the option contract is in the money,
the difference between the market price (spot price) and the strike price
(exercise price) is designated as intrinsic value.
Steps to compute the Intrinsic Value
1. The option contract must be in the in the money position
- In call option = if the strike price is less than market price

- In put option = if the strike price is greater than market price

2. Get the difference of the strike price and the market price
intriinnssitcruVinal
3. Multiply the difference by the notional amount. The notional amount is the
nominal or face amount that is used to calculate payments made on that
The time
intrinsic
•
Value element of the
t.
number of pounds or other units specified in the financial instrument).
instrument to (for example: number of shares, number of currency units,
se in Intrinsic
and time
Intrinsic
0 the total option premium. The accounting for the change in
value element shall be accounted as
op ion is computed by the sub
Incr a
•
Inere,
qse Time
-terease in Time
ecrease
v ue
Value Fair Value Hedge
FX gain - P/L
FX loss - P L
Cash Flow Hedge
FX Gain - OCI
FX oss - OCI
subtracting the
FX loss - P/L
a.
FX gain - p L
FX loss - P/L
FX gain - P
L
Strike Price is equal
Market Price
At the money
At the money
Strike Price is greater
than Market Price
Out of the money
In the mone
Strike Price is less
than Market Price
In the money
Out of the mone
Option
call Option
Put o
tion
0,zejeict &meg, 7:440attio4& 714.446:4,, 643

&wary 77awactioft43N

tt

It is an agreement between two parties to exchange cash

flows Sway

0 wield soo2n otrbriacpiot 1, 2020, a

Philippine firm esti.
ti es to be denominated s at least 5,000 units
date or in many cases multiple dates. Typically, one party a,...„_°n a tie,

"'chased from the US company du •

if

51* 'es to Lernii

R an

Pay a 21e0
rate while the other party pays a floating rate.
January 31, 2021 s

rf°b. will Lir transaction is

probable, and d
d occur six months following to purchase wing the

ioveotoloYo dollars. The

to are expected to
ated in

of the inven

1500' gales v en e
enters into a forw ar
contract

-The anmdoflsot apotinpaulcaarsthypfleoswosf

dollar. The corriPan-,
se 1,500,000
 t rest
osnwaariPs inTtheere:1, twc)
e 2021 for P1.01.

pohas n January 31, 202

Kinds of Sways_Swaps I. Inrte'es to exchange fixed

dollars °
investment or loan. There is no exchange of principal, The
Spot rate
1?
.i. size of the-eoR

Forward rate for Jan.

is referred to as the notional amount and is the basis

for caleni

sw1)
31, 2021

atiti

- g tile
P1.03
cash flows.
P1.01

' leg's cash flo

*En Exchange Swaps - is where one
ws are Paid .
Dec. 1, 2°
2. cForeeincv,
- 1.00

.99 .

while the other leg's cash flows

are paid in another curre 111 one
Dec. 31' 2020

.98

FX swap can be either fixed for floating, floating for floating, or,
rnev• An
Jan. 31, 2N1

ixed for

fixed.
is a contract where two sides of the deal agr
2020, foreign exchange loss on forward contract amounted to:

3. Commodity
The PD9e0c,0 31,

p90,000 separate component of equity

exchange cash flows, which are dependent on the price of an unctereie
to

b. P30,000 separate component of equity

co oditv. A commodity swap is usually used to hedge against the price

a co oditv. Most commodity swaps are based on oil, though

c. P30,000 current earnings

any typee °I

co odity may be the underlying, such as precious metals, i ea

d. P90,000 current earnings

-n,UStriClafi

metals, natural gas, livestock and grains. Considering the nature and
sizes

of the contracts, tvaically large financial institutions engage in

commodity

Answer B
swaps, not individual investors.

Suggested cash Solution hedge

Thsuigsgiesst a

so any exchange difference will be treated as gain or

loss on equity. FC Rec 1.01 - .99 = (.02) x 1,500,000 = 30,000 loss

Problem 83: Paul Corp. entered into a forward contract to hedge a sale of

inventory in October 26, 2030 to be collected on January 24, 2031. 72,000 FC

(foreign currency) in 90 days. The relevant exchange rates as follows:

Forward rate

Spot rate (1/24/31)

October 26, 2030

P52.73 P52.77
December 31, 2030

P52.82 P52.89

January 24, 2031

P52.94

Req. 1: w

iz o is the

will pber e net forex

re
gain (loss) from this transaction and hedge that

ported
an

on Paul's 2030 statement of income?

b' (P8,640)

c. P6,480

d. (P2,160)
9"."4,4c &emcee, 7 teufdt,c4:444
90.1eupt eatneocey 7,14444execkf 71,244/4eioa 645

,,r
The fair value of the forward conels:a05ztoober
26, 2030:

Req. 2:

gFesici'r6vaitie of forward contract - Oct. 26

Po
a. P3,799,440
d. PO

b. p3,808,080

31 2030
3'799,440
Req. 3: Determine the cost to Paul of entering into hedge of the fore.
0 x 52.77)

Dec'

go. ei, -rr Fgcetc.. 23601:: (..

(772d,0000 x 52. 89) Dec.
31 (liability) 3'808° 8,640
on October 26, 2030:-
C. P5,040
elk),

04Tf: hf oeor wnsale a rAdpwricolonutilrd,actAntak

P8,640

a. P8,640
d. PO

b. P2,880

be recorded in the 2030 income statement:

Req. 4: The total sales to
-ton received - a contract to sell invent

C. P3,799,440

a. P3,803,040
d. P3,808,080
problem air10e8
take place in 90 days. Anton immediately
signed otY ar

b. P3,796,560
• ¥90110d0a0; jo_._ ;, ,,ard contract to sell the yen as soon as they are received

1 i was P1 = ¥240, and the 90-day forward rate was P1 . The six:4
= V234.
Req. 5: The fair value of the forward contract on December 31, 2030?

C. P2,880 liability
rate on Apn

a. P8,640 liability

d. P2,880 receivable
At what amount would Anton record the Forward Contract on April?

b. P8,640 receivable
c. P240 million

Req. 1: -

a, Po
d. P234 million

b. p4,166

Req. 2: At what amount should Anton's sales be credited on April 1?

Answer 1) D 2) D 3) B 4) B 5) A

c. P234 million

a. PO
d. P4,166

Suggested Solution
b. P240 million

Req. 1 -

Receivable
Payable

Answer 1) A 2) D
Hedge item Hedge Instrument

Transaction date - Oct: 26

52.73 52.77

Suggested Solution
Balance sheet date - Dec. 31
52.82 52.89

Difference
0.09 gain 0.12
loss
Req. 1. There is no fair value of forward contract on the date of hedging

x Foreign Currency
72,000 72,000

Forex gain (loss)

6,480 (8,640)
Req. 2. 1/240 x Y1,000,000 = 4,166

Net Forex loss = (8,640) - 6,480 = (2,160)

Req. 2

Problem 85: Assume that Leo hedged the equipment purchase by a forward

Answer: There is no fair value of forward contract on the date of hedging

contract on December 1, 2030 for the delivery of $200,000 on February 28,

2031 at a forward rate of P14.32. Assume further that the forward rate for a 60
Req. 3

Oct. 26 - spot rate

day and 30dFeaybruatai December 31, 2030 is P14.36 and P14.40 respectively, and
Oct. 26 - forward rate
52.73
that the forward contract is a derivative instrument that is net cash settled()

52.77
na sene tes ptoht2e8r b.aat2el0a3an1rceer,Dile.c4e1m. her 1, 2030 P14.28; December
31, 203
Premium
Pr4n40"
0.04
x Foreign currency

72,000
Req, 1: Dre,
Cost to Paul

2,880
e cep oh epi0orYt
sheet presentation of the forward contract at

111 31 2030

Req. 4

b. P8,000 liability

c. P8,000 asset
FC 72,000 x P52.73 transaction date spot rate = 3,796,560

d. P10,000 liability
 ,,
,zeiga ea/navvy 7u0Auteeco,,
youe9a &vole* 71,4044ctioa & 7140.414tio, 647

646

Hedge Item

t cash settlement on forward

contract b
14.28
Req. 2: Determine t
counterparts at February 28, 2031:
d.c. P10,000 paid by _ 11 the 1 _
spot rate
14.41
a. p16,000 paid to Leo
d. P2,000 paid by L700
(0.13)

Dec. ,..0, _ spot rate

b. P18,000 paid to Leo
200,000

Feb. ..4° ce .. loss

(26,000)
Req. 3: Determine the cost to Leo of entering into hedge of the
Differ° Currency

foreign eirtrehey ForeiP

Forex loss
liability
c. P8,000
(8,000)
a. 1310,000
d. PO tai
FOrForexet loss (18K gain - 26K loss)

b. 139,000

To

Req. 4: The overall net foreign gain (loss):

d. P10,000 net loss

a. P8,000 net loss

sold merchandise for 111,200 euros to a customer

b. P8,000 net gain

s for
 Answer 1) C 2) B 3) C 4) A

on January

:orccdheanlivgeeryraot
Suggested Solution

for euros on different dates are as follows:

Req. 1
Forward Contract Receivable - Dec. 1
14.32
Forward Contract Receivable - Dec. 31 - 60 day rate
14.36
Nov. 2 Dec. 31 Jan. 31

81.9 80.7 80.1

Forex gain
0.04 Spot rate
x Foreign Currency
200,000 30-day futures
82.3 80.4 83.9

81.8 80.3 82.6

Forward contract - asset
8,000 60-day futures

80.6 81.6 83.4

90-day futures

120-day futures 80.1 81.4

82.8
Req. 2

Feb. 28 - spot rate P 14.41

Dec. 1 - forward rate P 14.32

What amount will affect profit or loss regarding

the hedged item on the financial
Difference 0.09

statement date in 2022?

x Foreign currency 200,000

a. P22,240 gain
Paid to Leo - P18,000
b, P22,240 loss c. P
133,440 gain

d. P133,340 loss

Reg: 3
Req. 2: What amount will affect profit
Dec. 1 - spot rate P14.28
on the settlement date in 2023? or loss
regarding the hedging instrument

Dec. 1 - forward rate

a. P66,720 gain
P14.32
Premium
b. P66,720 loss c.
P33,360 gain
0.04
x Foreign currency
d. P11,120 gain
200,000
Cost to Leo
P8,000
eq.::s:reg:unit of all foregoing transactions, what amount will

affect current

earnings on the settlement date in 2023?

Req. 4
- Feb. 28 - spot rate
Hedge Instrument b.
P33,360 loss C.
P11,120 loss

Dec. 1 - forward rate

14.41
d. P11,120 gain

Difference - gain
14.32

x Foreign Currency
0.09

Forex gain
200,000

18,000
7,11e4pe &wee+ 7tetwaer
7_ %"" &mg, 714044teetio & 71440104.04 649

(Oft 71414,

4140„% 00,030 to be delivered on March 1, 2031. The following

direct exchange rates

Answer 1) D 2) C 31

11p/ 41/230 12/1/30 12/31/30

3/1/31

Suggested Solution
P39 P38 . P41

are Prdeci:
P41 P45

P40
Req. 1
P80.70 ou ,ng spot rate
Balance Sheet Date - Dec. 31 - Spot rate (Receivable)
P43 P43 P41
P46

seiYiln_. spot rat'

Transaction Date - Nov. 2 - Spot rate (Receivable)
P81.90 Forwiargd buying 90-days
P41 P42 P40
P47

(1.20)
P45 P44 P42
P48
Difference
111,200 ,,Foorrwarardd buying
P43 P41 P43
'P49
x Foreign Currency
P ar4

P42 P40 P44

P43
Forex loss
FFFF 000 rwric etraraj. ddd bsuelyilinngg 30-days•

P41 P43 P41

P45
selling 30-days_
Req. 2
P80.40
Dec. 31, 2022 - 30 day futures (Payable)

P80.10
Jan. 31, 2023 - Spot (Payable)
currency gain/ (loss) in hedging activity for the

0.30 R 1: What is the net foreign

Difference

111,200 ye areq. ended December 31, 2030

c. P3,000 net loss
x Foreign Currency
Forex Gain
P33,360 a. P2,970 net loss
d. P3,130 net loss

b. P3,090 net loss

Req. 3
currency gain/ (loss) in hedging activity for the

Req. 2: What is the net foreign

respectively in Profit or Loss?

Hedge Instrument
year ended December 31, 2031,

P80.40
c. P2,040 net gain
Dec. 342022 - 30 day futures (Payable)

P80.10 a. P1,960 net gain

d. P2,010 net gain
Jan. 31, 2023 - Spot (Payable)

b. P2,060 net, gain

Difference
0.30

x Foreign Currency
111,200

Forex Gain
P33,360 Answer 1) A 2) A

RSueggg iested Solution

Hedge Item - Seller
 Dec. 31, 2030 - Spot Rate (Receivable)
P80.70

Jan. 31, 2023 - Spot Rate (Receivable)

P80.10 Hedge Item - Buyer

Difference
(0.60) Hedge Item

Nov. 1, 2030 - Spot Rate (Payable)

x Foreign Currency
111,200
P42.00

Forex Loss
P(66,720) Dec. 31, 2030 - Spot Rate
(Payable)
P45.00

Difference

x Foreign Currency
(3.00)

Forex Net Loss P33,360 = 33,360 gain + 66,720 loss

Forex Loss
1,000

P(3,000)

Hedge Instrument

contract for

Problem 87: On November 1, 2030, Paul Co. signed an ordinary °-

hea forward
(Receivable)
the delivery of special brewing equipment from US-based manufacturer at
P42.00

Dec, 31, 2030 - 90 day forward Receivable

selling price of US$1,000. The equipment was actually delivered Y,telop
Difference (
) P43.00

interest to Paul Co. on December 1, 2030 and Paul signed a 90-day stile note
1.00
Forex Gain
providess thearing 12% note payable with due date on March 1, 2031.. l_tue (use
1,030

360-day). On December principal and interest shall be paid on the maturity

da,urrevcy
P1,030

risk, Paul Co.n ecember 1, 2030, in order to protect itself from foreign e'llase of

entered into a forward contract with BPI for the Pur

Porex Net loss P2,970 --- 3,000 loss + 1,030 gain
,1):421,st &moat 7Pleursaction
%Teigo eeetnegef 77eutdactioa & 714041,16.04 651

-441.44,6s0

ember 1, 2030, Harold Company, a Philippine. Company,

9. on Dec month forward contract topurchase 82,500 Ph

ilippines
Req. 2:
tern 8 •
Hedge Item - Buyer
ptobci into a three 2031. The following peso per P • •
dollar exchange ange

tere Marc."
Hedge Item
en on Spot
Forward Rate
Dec. 31, 2030 - Spot•Rate (Payable)
doll° ,,lop Y.." •

Mar. 31, 2031 - Spot Rate (Payable)

Rate (Mar. 1, 2031)

rates -

P40 00
P0.092 P0.105
Dix Foreifference gn Currency (Note Payable $1,000 + Interest Payable $10

pate ,er 1, 2030 P0.090

P0.095

P0.089 N /A
Forex gain
December 31' 203°
Interest Payable = $1,000 x 12% x 30/360 = $10
Decor% 2031

march 1,

Hedge Instrument
borrowing rate is 12%. The present value factor for two

Dec. 31, 2030 - 90 day forward (Receivable)

annual interest rate of 12% is .9803.

gool at
Mar. 31, 2031 - Spot Rate (Receivable)

Difference

vili:licthhsofatthane following is included in Harold's December 31, 2030 balance

sheet

x Foreign Currency

Forex loss
c. P808.75 asset.

afor the forward contract?

Fores Net Gain P1,960 = 5,050 gain + 3,090 loss

P84 918.88 asset d.
P808.75 liability.

b. P84,918.88 liability.

Problem 88: On August 1, 2030, Marie Inc., a Philippine Company purchased

Answer D

a machine costing FC500,000 from a foreign vendor to be paid on October 1

2030. Also on August 1, 2030 Marie entered into a forward contract to

Suggested Solution.

Forward rate
purchase FC500,000 to be delivered on October 1, 2030, at a forward rate of
Forward Contract

P0.35. The exchange spot rate Were as follows:

Dec.31, 2030
P0.095

Dec. 1, 2030
P0.105

August 1, 2030
FC 1 = P.34
P.01 liability

August 31, 2030

.31 Midtiply: Foreign Currency
82,500

September 30, 2030

.33
825.00

October 1, 2030
.32 PV Factor '
0.9803

Liability
November 30, 2030
.32

808.75

December 31, 2030

.33

Which of the following statements is incorrect concerning the accounting

treatment of these transactions?

a.
Problem 90: Davao Company sold merchandise for 90,000 rupees to a
The original balance in the deferred premium account was p5,000
b.
customer in India on November 02, 2030. Collection in India rupees was due on
The machine final recorded value was P175,000
c.
January 31, 2031. On the same date, to hedge this foreign currency exposure,

The exchange gain on the accounts payable of P 10,000 was recognized on

October 1, 2030
for deliCvoeCompany entered into a futures contract to sell 90,000 rupees to adaant

are as follows: 31, 2031. Exchange rates for

rupees on different dates

d. The beginning balance in the accounts payable was P 170,000

Answer B
Bid spot rate

Nov. 2 Dec. 31 Jan. 31

81.9 80.7 80.1

Suggested Solution

ssr alatY 82.3

80.4 83.9

1961 rfutures

81.8 80.3 82.6

The equipment should be recorded at .34 x 500,000 = 170,000

day r YY3TY ffuturefutures nt January 80.6
81.6 - 83.4
eerrteNcy 77aowact4ft ig 7,4
7111PIP-
Company's income in 2031 as a re
esz
c. P36,000 gain
Ne444,
d. P36,000 loss
What was the net impact in Davao
this hedging activity?
a. P27,000 loss
b. P27,000 gain
Answer A
Suggested Solution
Hedge Instrument
Dec. 31, 2030 - 30 day future rate (payable)
P80.40
January 31, 2031 - Spot Rate (payable)
P80.10
Difference - gain
0.30
x Foreign Currency
90,000
Forex Gain
P27,000
Hedge Item
Dec. 31, 2030 - Spot Rate (Receivable)
P80.70
January 31, 2031 - Spot Rate (Receivable)
P80.10
Difference - loss
0.60
x Foreign Currency
90,000
Forex Loss
P54,000
Net Forex loss P27,000 = 27,000 gain + 54,000 loss
Problem 91: Return Company acquired machinery for $169,200 from a vendor
in New York on December 1, 2022. Payment in US Dollars was due on March
31, 2023. On the same date, to hedge this foreign currency exposure, Return
entered into a futures contract to purchase $169,200 from a BDO for delivery
on March 31, 2023.
Exchange rates for US Dollars on different dates are as follows:
Selling spot rate
30-day futures
60-day futures
90-day futures
120-day futures
c. P236,880 loss
d. P236,880 gain
Wha t amount will affect profit or .loss regarding the hedging instrument
p50,
c. P16,920 loss
00
760 loss
Req. 4: ". dal statement date in 2022.
the fillah
d. P 16,920 gain
p50,760 gain
Reg'
3 Asa result of all foregoing transactions, what amount will affect current
eartlings on the financial
statement datec.ipn120012,
522% loss
•
a. p33,840 gam
d. P101,520 gain
b. p33,840 loss
Answer 1) C 2) B 3) C
Req. I
Hedge Item - Buyer
Hedge Item
Dec.31, 2022 - Spot Rate (Payable)
Mar. 31, 2023 - Spot Rate (Payable)
Difference - loss
x Foreign Currency
Forex Loss
RRHHeeqecie.dd. 2gg3ee Item
DDFoeurcfee.xr3eGln,aic2:01_2g2 - gain
x Foreign Currency
90 day futures (Receivable)
Hedge Instrument
Dec. 1,2022 - 120 day future (Receivable)
Buyer
Dec,xtvoipfrofeerxreleLo,ir2:012.210- Spot ot Rat e (Payable ) •
Dec. 31, 2022 - Spot Rate (Payable)
Foreign Currency
Net pore*,
of
Dec. 1
41.4
42.3
41.8
40.6
42.2
Dec. 31
42.3
41.8
42.2
42.5
42.8
March 31
43.7
43.2
42.6
43.4
42.9
Reg. ont date
settlpei52,280 loss
a. pi52,280 gain
mount will affect profit or loss regarding the hedged item on its
1: What a in 2023?
P42.30
P43.70
(1.40)
169,200
P(236,880)
P42.20
P42.50
0.30
169,200
P50,760
P41.40
P42.30
(0.90)
169,200
P(152,280)
s P101,520= 152,280 loss + 50,760 gain
7 &mega, 714404440c & 71440edeloo 655

9041 6"941/0,
7Me►i4ediens, di 7_

71,4,44

Velocity Ce

NJ IP/Any, ,J;,t :1 VIA fi

our

Ada Ott gn t ffir/Mrd f,ontra.,1, dated ' d

Novtni,_ purchase of

PF'ieirl 7.... I 0$ lin di; f

1, 2022, for

'NA I

',OP Ise 10

'AfrA

44° „„

iiitrrY

(1114,1„I'l 41r,1 11/1P2

a 63" folowa:

dares are as

Dro. 31
Mnrrlt 31
Dee. 1

42.3
seat °Marti rate P57,65
41.4

Selling spot rate 41.8

304aYord rate
42.3
3.2 P54,25
 30-day futures 42.2
41.8
12.6

9619'0daY faward rate

60-day futures 42.5
51;,....-c-u'.aze.
40.6
43,4 •

° ntered into the forward (..A.r.trg-.c.t

90-day futures 42.8

42.2
42.9

Velocige
120-day futures

t for the year endecd. PD8e672r6noberio: Is, 20M win"

in Bacolod Company's income in 2030 as a

result of gainlloss should i ome statement In nc
h uld Velocity report from thdis. pfo8rw6,

What was the net impact

this hedging activity?

b. a, p83,990 gain a_2r6d0 gain

a. P75,000 loss

b. P83,990 loss

b. 1375,000 gain

c. P90,000 gain

d. P90,000 loss

Answer D
Suggested Solution

Answer D
P54.25

Nov. 1,2030 - 90 day forward (Receivable)

Dec.31, 2030 - 30 day forward (Receivable)

P56.15

Suggested Solution

Difference - gain
1.90

Hedge Instrument
x Foreign Currency

45,400

Dec. 1, 2030 - 120 day futures (Receivable)

P42.20 Forex Gain

P86,260

Dec. 31, 2030 - 90 day future rate (Receivable)

P42.50

Difference
0.30

x Foreign Currency
150,000

Forex Gain
P45,000 Problem 94: On December 1. 2029,

Orange, Inc. entered into a 120-day

forward contract to purchase 250,000

US dollars for speculative purposes.

Orange, Inc. fiscal year ends

Hedge Item
follows: on December 31. The exchange rates
are as

• Dec. 1, 2030 - Spot Rate (Payable)

Date

P41.40

Dec. 31, 2030 - Spot Rate (Payable)

Spot rate

P42.30
Forward rate (3/31/30)

December 1, 2029
Difference
P45.00 P45.50

(0.90) December 31, 2029

x Foreign Currency
46.00 46.50

150,000 JanuatY 30, 2030

Forex Loss
45.60

March 31, 2030 45.30

P(135,000)

45.10

2030?
Net Forex Loss P90,000 = 45,000 .gain + 135,000 los s
How much is the forex gain or loss to be reported from this forward contract in

143: P250,000
P350,000

c. P300,000

d. P225,000
76,7eape Law 7,:aeriaceeber
evreeept &mega, 7tagdactio.t& 74oa657
ft656
entered into a forward
marie Co.
contract.
ore's'
yen at the forward rate on November 1, 2 with BD°
fo f
firm cornmit
•

030
fbr t
re nCY
sale o dge of the foreip currency
risk of a f
the
tbat:Ice .ther fad
cash flow
to account
Answer B
Suggested Solution
Settlement Date - spot rate Mar. 31 (Receivable)
Balance sheet Date - forward rate Dec. 31 (Receivable)
Difference - loss
x Foreign currency
Forex loss
Problem 95: The following information is available with regard
Company's sale of 10,000 foreign currency units under a f
to
orwardQC
dated November 1, 2030, for delivery on January31, 2013:cot
Nov. 1, 2030
Dec. 31, 2030
Spot rate
P8.00
P8.30
30-day forward rate
7.80
8.20
90-day forward rate
7.90
8.10
QC Company entered into the forward contract in order to speculate in the
foreign currency.
In QC Congoany's income statement for the year ended December 31, 2030, what
amtrurzt of gain or loss should be reported from this forward contract?
a. P1,000 loss
c. P3,000 loss
b. P1,000 gain
d. P3,000 gain
Answer C
Suggested Solution
Nov.1, 2030 - 90 day forward rate (Payable)
Dec. 31, 2030 - 30 day forward rate (Payable)
Difference - loss
x Foreign Currency
Forex Loss
P7.90
P8.20
(0.30)
10,000
P(3,000)
Firm Commitment
Mot
Problem 96: On November 1, 2030, Marie Co. entered into a firm with a
with Told-Told .
mangoes co. oo
Japanese Company for the export of dried
contraet
corriml
jan

price of 10,000 Yen. The goods will be delivered by Mari.e_ Ask of

changes in f2031. On the same day, in order to protect itself from tnei.‘“iyi5g
n air value of the firm commitment due to changes in uncle
P45.10
P46.50
1.40
250,000
350,000
b. P120,000
C. P110,000
d. P130,000
b.
P40,000 gain -
0tshosoecuoynrinrIgi Marie oinpgtsed to use cash flow hedge to account for the
hedge
etmndeendt,Dwelicaetmisbetlrae301,t2h0e3r0C?omprehensive Income due to hedge
P40,000 loss — OCI
cl. Zero
OCI
Req,
What is the foreign currency gain/(loss) due to hedged item for the year
ended December 31, 2030
d. P10,000 loss
en
Rae. q.P24:0:00atgain
the foreign currency gain/ (los s) due to hedging instrument for
the yPe1.0,0e0nOdelods:
December 31, 2031, respectively in Profit or Loss?
a. P30,000 gain
c. P20,000 loss
b. P50,000 loss
d. P20,000 gain
Req. 3: Assuming Marie opted to use cash flow hedge to account for the hedge
3o0f,th2e131117 commitment, what is the amount of sale to be recorded in January
a. P160,000
iaoRtf.eetniqhp. e4f4ofi:orArn:
Forward dss:Pb:utyi:itg:90- days
Forward selling 90-days
Forward buying 60-days
Forward selling 60-days
Forward buying 30-days
Forward selling 30-days
ment
using fair value hedge. S 39 provides
hedge. Man
may be accounted
ounted
*e Co. elected
d:
The following
for elhedge of the
co
for the change rates are provided:
Nov. 1, 2030
P10
P13
P11
P13
P14
P15
P11
P13
Dec. 31, 2030 Jan. 30, 2031
P13
P12
P15
P16
P14
P15
P16
P17
P17
P16
P18 .
P14
P15
' P12
P11
P14
c. P30,000 gain
Req. 2
Dec. 31, 2030 - 30 day forward (Payable)
Jan. 30, 2031 - Spot Rate (Payable)
Difference
x Foreign Currency
Forex gain
Answer 1) A 2) A 3) B 4) D
Suggested Solution
Req. 1
Hedge Item
Nov. 1, 2030 - 90 day forward (Receivable))
30 day forward (Receivable)
Dec. 31, 2031 -
Difference
x Foreign Currency
Forex gain
57014:0#4?"
14.62ciet.
loft cc 74
P 15.00
•
P12.00
3.00
10,000
P30000
P11.00
P15.00
4.00
10,000
P40,000
Sg
Req. 3
Jan. 30, 2031 buying spot rate P12 x 10,000 yen = 120,000
Req. 4
Zero, no entry will be recorded under the hedge item in the books of Marie
because it is a cash flow hedge.
901.e.94 &mace., 7teutlactom & 7tagdiateda 659
r0 opted to use cash flow hedge to account foeretqhuciphmedegnet
;„g NI—
w much is tch.epalm75700not;debited3/3lof3or th
2: Assuill.;itment, ho
d. P175,000; 11/2/22

bg.". fir°1
te of:
accollot 125. 3/31/23
of the on the da

pi53,.
, /2/22
p161,875;
owei 1) D 2) A
since the
cgs0„;:qa p tyepd: osS oa equipment tre the aondy date committed n
forward rate (Nov. 2, 2022) x 4,375 = P175,000. The compan will
using the forward rate on Nov. 2, 2022 s' Y
to buy the equipment at that price but it shall
cdo the
 on berecroer
of purchase which is March 31, 2023.
m
On November 1, 2022, Strike Company entered into a firm
tinn 98: : to acquire a machinery from Spain Company. Delivery and
eoe 9 of would be on February 28, 2023 at the price of 37,800 euros,
accounted ted for as fair value hedge. On the same date, to hedge against
unfavorable changes in the exchange rate, Strike entered into, a 120-day
forward contract with China bank for 37,800 euros.
2: Spot rate P35 (Mar. 31; 2023)
,
P153,125. The company will
e
Recci
1- 2023 x 4375= o.rd the equipment using the spot rate on March 31, 2023 since the
company
record
to use cash flow hedge to record the firm commitment.
Problem 97: On Nov. 2, 2022, NICO entered into firm commitment with
Japanese firm to acquire an equipment, delivery and pas sage of title on March
31, 2023 at a price of 4,375 yen. On the same date, to hedge against
unfavorable changes in exchange rate of the yen. NICO entered into a 150 day
forward contract with BPI for 4,375 yen. The relevant exchange rate were as
follows:
Exchange rate were as follows:
Nov. 01, 2022
Dec. 31, 2022
Feb. 28, 2023
Spot Rate
P96.50
97.25
99.70
Forward Rate
P94.30
96.50
'99.70
11/2/22
37---
40
12/31/22
38
33
3/31/23
35
35
Spot rate
Forward rate
of:
Req. 1: How much is the amount debited to the equipment account on the date
a. 200,000 ; 11/2/22
b. 200,000 ; 2/31/23
c. 185,000; 11/2/22
d. 175,000 ; 3/31/23
Req. 1: What amount will affect
the financial statement date in
a. P28,350 loss
b. P28,350 gain
Req. 2: The Firm Commitmen
liability)
2022 statement of financial p
a. P83,160 liabili
b. P83,160 asset
profit or loss regarding the derivative asset on
2022?
c. P28,350 asset
d. P28,350 liability
c. P83,160 loss
d. P83,160 gain
t account balance as shown in the December 31,
osition amounted to: (Indicate whether asset or
Answer 1) D 2) A
Suggested Solution
Hedge Instrument
Nov. 1, 2022 - forward (Receivable)
Dec. 31, 2022 - forward (Receivable)
Difference - gain
x Foreign Currency
Forex gain
%,reepo e,uvreffeay 7' stook & 7izasideitio, 661
oni3fr a highly probable forecast of importation of
c. P20,000
d. P14,000
Req. 2:
Nov. 1
d (payable)
1, 2022 - forwar
Dec. 31, 2022 - forward (Payable)
Difference - loss
x Foreign Currency
Finn Commitment - Liability
70,4„4„ eememey 7:404(cetc:".c cg 7,4 #4,(y4. 660
P94.30
P96.50
2.20
37,800
P8 3160
P94.30
P96.50
2.20
37,800
P83,160
cemoqviliswripeivirteroin)etcri::cut instead
a.
s cot ctively?
08,000
pb9, selling 0
0f00
35 eugggeisted Solution
= P18,000
fora'
rate 120 days (Oct. 2, 2030) x 2,000 Euro
Req. 2"
(Jan. 30, 2031) x 2,000 Euro = 20,000
T10 spot rate
•
Problem 99: On October 2, 2030, Ivan Inc. entered into a firm commitment
with a European Company for the importation of equipment with a contract
price of 2,000 Euro to be delivered on Jan. uary 30, 2031. On October 2, 2030
in order to hedge the foreign currency risk related to this firm commitment'
Ivan entered into a forward contract with-PNB for the acquisition of 2,000 Euro'
at forward rate on October 2, 2030 to be delivered on January 30, 2031.•he
following direct exchange rates are provided:
31-Oct-30
31-Dec-30
30-Jan-31
Buying spot rate
P5
P7
P8
Selling spot rate
P6
P8
P10
Forward buying 120-days
P7
P9
P12
Forward selling 120-days
P9
P10
P13
Forward buying 90-days
P8
P 1 1
P15
Forward selling 90-days
P10
P14
P13
Forward buying 30-days
P12
P15
P 1 1
Forward selling 30-days
P11
P12
P12
c. P18,000
d. P20,000
Req. 2: What is the by Ivan
lassifica,
adjustment b
/amounted debited to equip
1'0 fry
ment before rec „n on Jan' uaiy
30, 2031 assuming there is
Req. 1: What is the cost/amount' debited to equipment by Ivan on JantlrY30'
2031?
a. P16,000
b. P14,000
problem 100: November 22, 2029, Bongga Company entered into a forward
contract- to purchase 375,000 foreign currency in 90 days. The relevant
exchange rates are as follows:
Spot rate
Forward rate (2/20/30)
November 22, 2029
P0.88
P0.90
December 31, 2029
0.98
0.93
Assuming that the forward contract is to hedge a commitment to purchase
machinery being manufactured to Bongga's specifications. At December 31,
2029.
c. P11,250 gain
d. P37,500 gain
What amount of foreign currency transaction gain (loss) should Bongga include
in profit or loss from this forward contract?
a. P11,250 loss
b. P37,500 loss
What amount of foreign currency transaction gain (loss) should Bongga include
in profit or loss from firm commitment?
a. P11,250 loss
b. P37,500 loss
c. P11,250 gain
d. P37,500 gain
Answer 1) A 2) C
_Suggested Solution
1: P0.90 -
Req
= loss P0.03 x 375,000 = 11,250 loss
eq. 2: P0.90 - P0.93 = gain P0.03 x 375,000 = 11,250 gain
?owe,„ eavresev 7-kumacreo«
44,66
nut
conir
Req. 2:200
pl,
1 8°°
bg5.e. 3:c000raPtite.the
a (1. P57 'o
•
p54,600
the
problem 101: On November. 1, Naga Company entered into a fl

passage of title
- 'trni

achinery. Delivery andPa

e would be
Coln
to acquire
a in 'ce of $12,000 Singapore dollars. On the same on Feb Illitlile
against unfavPonra
ges in the exchange rate, S
bank for $12,000 Singapore dollar 1--° a ° hedge'
entered cl:+te) tt114111.Yrit
2031 at the
forward contract withchCanhina
S. i:xeh 10 Re
were as follows:
an (la
Re 1.,,Y
qte
Forward Rat
13341.30 e
36.70
39.50
How much is the forex gain or loss recognized by the S company
co -tment on December 31, 2030?
On the firni
a. P13,800 gain
,
c. P13,800 loss
b. P28,800 loss
d. P28,800 gain
Answer B
Hedge Item - Buyer
Nov. 1 , 2030 - Forward rate (Payable)
P34.30
Dec. 31, 2030 - Forward rate (Payable)
P36.70
Difference - loss
(2.40)
x Foreign Currency
12,000
Forex loss
P(28,800)
Problem 102: On December 1, 2030, Amboy Company, a Philippine firm, sold
merchandise to Boy Company of Spain for 60,000 euro. Payment is due on
February 1, 2031. Amboy entered into a forward exchange contract on
December 1, 2030, to deliver 60,000 euro on February 1, 2031 for P.97. Amboy
chose to use a foreign currency option to hedge this foreign currency asset
designated as a cash flow hedge. Relevant exchange rates follow:
Date
December 1, 2030
December 31, 2030
February 1, 2031
Req. 1: Compute the value of the forei2030.
gn currency option at December
a. P3,000
b. P58,200
~oaeiyaexprnegat 714.04Acti,m & 77eutdeetteaft 663
value of the foreign currency option at February 1, 2031.
c. P56,400
d. P58,200
peso amount received on February 1, 2031.
c. P55,200
d. P58,200
Answer 1) D
3) D,
suggested Solution
PaReq" X 60 ,000
•••• Vt
Req. 2
60 ,000
00.03 x
P0.97 x 60,000 euro = 58,200
pOrpotbi loenni C o wn3t ra
103: On
oVbaelru el H2e0d3g0e,
5J Inc. sold on account an inventory to a
US-based company at a price of $5,000 collectible on January 30, 2031. On
November 1, 2030, 5J purchased on account an inventory to a US-based
company at a price of $8;000 payable on March 2, 2031.
On October 1, 2030, in order to hedge the foreign currency risk related to its
foreign currency denominated account receivable, 5J acquired a 120-day put
option from RCBC to sell $5,000 at a strike price of P40 by _paying option
premium of P500. On November 1, 2030, in order to hedge the foreign currency
riskrelated to its foreign currency denominated account payable, 5J acquired a
pla230i-nfdogalyloopwiTlnolgnopprteimionufmroomf PR6C0B0
Th
C to buy $8,000 at an option price of P41 by
additional data are provided:
Nov. 01, 2030
Dec. 31, 2030
Feb. 28, 2031
Spot Rate
P36.25
37.40
39.50
Spot Rate
Option Premium

P0.97
P0.05

P0.95
P0.04

P0.94
P0.03
c. P55,200
d. P2,400
euro = 2,400,
euro = 1,800
Req. 3
•
31,
Buying spot rate
Selling spot rate
Fair value of put otio
Pair value of call opptionn
Year 2030
10/1
11/1
12/31
P40 P38
P36
P39 P41
P44
?
P23,000
?
?
P25,000
Year 2031
3/2
1/30
P37
P39
P41
P42