Professional Documents
Culture Documents
Problem I
1.
2.
FCU
Peso
Direct Exchange Rate
P8,000
P40.00
$200; or
Problem II
a. Exchange rates:
Direct
Exchange Rate
Indirect
Exchange Rate
Arrival Date
Departure Date
2.
The direct exchange rate has decreased. This means that the peso has
strengthened during Mr. Alt's visit. For example, upon arrival, Mr. Alt had to pay P33
per each dollar. Upon departure, however, each dollar is worth just P32.50. This
means that the relative value of the peso has increased or, alternatively, the value
of the dollar has decreased.
3.
The Philippine peso equivalent values for the 100 Singapore dollars are:
Arrival date
100 dollars x P33.00 =
Departure date
100 dollars x P32.50 =
Foreign Currency Transaction Loss
P3,300
3,250
P 50
Mr. Alt held dollars for a time in which the dollars was weakening against the peso.
Thus, Mr. Alt experienced a loss by holding the weaker currency.
Problem III
1. If the direct exchange rate increases, the peso weakens relative to the foreign
currency unit. If the indirect exchange rate increases, the peso strengthens relative to
the foreign currency unit.
2.
Transaction
Importing
Importing
Settlement
Currency
Decreases
NA
L
NA
G
NA
G
NA
L
NA
G
NA
L
NA
L
NA
G
Purchases..
Accounts payable ($24,000 x P40.55)
973,200
Exporting
Exporting
Peso
Decreases
LCU
Peso
LCU
Problem IV
1.
December 1, 20x4 (Transaction date):
973,200
6,000
6,000
P979,200
973,200
P 6,000
979,200
3,600
975,600
2.
a.
a.1. None transaction date (December 1, 20x4)
a.2. P6,000 loss
a.3. P3,600 gain (March 1, 20x5)
b.
b.1. P979,200 spot rate on the balance sheet date or current rate on the balance sheet
b.2. P973,200 spot rate on the transaction date or historical rate on the balance sheet
date.
Problem V
1. December 1, 20x4 (Transaction date):
Accounts receivable ($60,000 x P40.00)
Sales
2,400,000
2,400,000
42,000
42,000
P2,442,000
2,400,000
42,000
2,436,000
6,000
2,442,000
2.
a.
a.1. None transaction date
a.2. P42,000 gain
a.3. P6,000 loss (March 1, 20x5)
b.
b.1. P2,442,000 spot rate on the balance sheet date or current rate on the balance sheet
b.2. P973,200 spot rate on the transaction date or historical rate on the balance sheet
date.
Problem VI
The entries to record these transactions and the effects of changes in exchange rates are
as follows:
November 1, 20x4 (Transaction date):
Equity investment (FVTPL)/Financial Asset
Cash
3,840,000
3,840,000
636,000
636,000
1,020,000
1,020,000
P4,860,000
3,840,000
P1,020,000
P3,840,000
3,888,000
48,000
P 972,000
19,200
19,200
5,107,200
5,088,000
19,200
5,107,200
57,600
5,164,800
8,400
June 20
Accounts Payable
Cash
Settle payable.
8,400
July 1
Accounts Receivable
Sales
Foreign sale denominated in pesos
10,000
August 10
Cash
Accounts Receivable
Collect receivable.
10,000
8,400
8,400
10,000
10,000
2.
May 1
June 20
July 1
August 10
8,400
8,400
600
600
9,000
9,000
10,000
10,000
1,000
1,000
11,000
11,000
Problem VIII
1. Denominated in FC
RR Imports reports in Philippine pesos:
Direct
Exchange
Rate
2.
12/1/x4
12/31/x4
1/15/x5
Transaction
Date
Balance Sheet
Date
Settlement
Date
P.70
P.66
P.68
December 1, 20x4
Inventory (or Purchases)
Accounts Payable (FC)
P10,500 = FC 15,000 x P.70
10,500
10,500
600
300
AJE 12/31/x4
1/15/x5 Settlement
10,200
10,200
300
10,200
12/1/x4
10,500
Bal 12/31/x4
AJE 1/15/x5
Bal 1/15/ x5
9,900
300
10,200
Bal 1/16/x5
Problem IX
1. December 31, 20x6
Accounts Receivable (FC1)
Foreign Currency Transaction Gain
Adjust receivable denominated in FC1
to current peso equivalent
and recognize exchange gain:
P83,600 = FC475,000 x P.176 Dec. 31 spot rate
- 73,600 = Preadjusted Dec. 31, 20x6, value
P10,000
2.
600
-0-
10,000
5,200
1,900
10,000
5,200
1,900
164,000
85,500
6,300
86,000
163,800
4.
P10,000
1,900
P11,900
gain
gain
gain
5.
P 5,200
6,300
P11,500
gain
gain
gain
5.
85,500
164,000
6,300
163,800
86,000
P11,900
11,500
P23,400
CDL could have hedged its exposed position. The exposed positions are only those
denominated in foreign currency units. The accounts receivable denominated in
FC1 could be hedged by selling FC1 in the forward market, thereby locking in the
value of the FC1. The accounts payable denominated in FC2 could be hedged by
buying FC2 in the forward market, thereby locking in the value of the FC2.
Problem X
Accounts
Receivable
Accounts
Payable
Foreign Currency
Transaction
Exchange Loss
Foreign Currency
Transaction
Exchange Gain
Case 1
NA
P16,000(a)
NA
P2,000(b)
Case 2
P38,000(c)
NA
NA
P2,000(d)
Case 3
NA
P27,000(e)
P3,000(f)
NA
Case 4
P6,250(g)
NA
P1,250(h)
NA
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
2.
3.
4.
x
x
FC30,000
FC30,000
Gain
P.4845
P.4945
x
x
FC30,000
FC30,000
Loss
January 15
Foreign Currency Units (LCU)
Exchange Loss
Accounts Receivable (LCU)
Collect foreign currency receivable and
recognize foreign currency transaction
loss for changes in exchange rates:
P300,000 = (LCU 900,000 / LCU 3) Jan. 15 value
- 315,000 = Dec. 31 Peso equivalent
P 15,000 Foreign currency transaction loss
P120,000
P140,000
=
=
-105,000
P(35,000)
5.
20x4
P14,685
14,535
P 150
P280,000
-240,000
P 40,000
=
=
300,000
15,000
20x5
P14,535
14,835
P (300)
315,000
6. c P4,000
AJE
4,000
97,500
93,500
4,000
90,000
6,000
3/20/x4
Foreign Exchange Loss
Accounts Payable (FCU)
96,000
6,000
6,000
Interest expense
Interest Payable (FCU)
10/15/x4
AJE
11/16/x4
20,000
500,000
20,000
520,000
25,000
1,000
26,000
25,000
1,000
1,000
Settlement
11/16/x4
5,000
105,000
5,000
Note: The receivable is recorded on October 15, 20x4, when the goods were
shipped, not on September 1, 20x4, when the order was received.
9. b P1,000
500
X5 AJE
1,000
Settlement
4,500
(10,000 x P.60)
4/08/x4
6,000
(10,000 x P.55)
12/31/x4
5,500
(10,000 x P.45)
3/01/x5
4,500
Bal.
1,000
-0-
1,000
P9,000 = 300,000 FCUs x (P1.65 - P1.62). The foreign currency transaction gain is
computed using spot rates on the transaction date (November 30, 20x4) and the
balance sheet date (December 31, 20x4). The forward exchange rates are not
2.08
2.05
P
.03
350,000
P 10,500
14. b
Date of transaction (7/3)
Balance sheet date (8/31)
Foreign exchange currency gain per FCU
Multiplied by: No. of FCU
1.58
1.55
P
.03
375,000
P 11,250
15. b The value of the asset acquired should be the spot rate on the date of transaction, i.e.
P-80. Therefore, the final recorded value of the electric generator should be P40,000 (P.80 x
50,000 FCs)
16. a
Date of transaction
Date of settlement
Foreign exchange currency gain per FCU
Multiplied by: No. of FCU
Foreign exchange currency gain
.75
.80
P
.05
200,000
P 10,000
17. d
Date of transaction (12/15)
Balance sheet date (12/31)
Foreign exchange currency gain per FCU
Multiplied by: No. of FCU
Foreign exchange currency gain
.60
.65
P
.05
80,000
P 4,000
18. b
1 .65
1.62
P
.03
300,000
P 9,000
19. b
1.49
1.45
P
.04
500,000
P 20,000
20. a
Date of arrival (P1,000 / 480,000 FC)
Date of departure (P100/50,000 FC)
Foreign exchange currency loss per FCU
Multiplied by: No. of FCU
Foreign exchange currency loss
P .00208
.00200
P .00008
50,000
P
4
21. b
1.20
1.10
P
.10
5,000
P
500
22. d
1. 08
1.10
P
.02
23,000
P
460
23. a
. 85
.90
P
.05
20,000
P 1,000
24. b
. 31
.34
P
.03
100,000
P 3,000
25. a
.265
.262
P .003
100,000
P
300
26. d
.262
.264
P .002
100,000
P
200
27. c
Foreign exchange currency gain (No. 25)
Foreign exchange currency loss (No. 26)
Overall gain , net
P
_
P
300
200
100
or,
Date of transaction (12/5)
Date of settlement (1/10)
Foreign exchange currency gain per FC
Multiplied by: No. of FC
Foreign exchange currency gain
.265
.264
P .001
100,000
P
100
28. c
9/5: Original forward rate or 90-day forward rate
12/2: Date of expiration of the contract (assumed) since the
term spot rate was used
Foreign exchange currency gain per FC
Multiplied by: No. of FC
Foreign exchange currency gain
.1850
.1865
.0015
100,000
P
150
P
It should be noted that since, the forward contract was not designated as a hedge, offsetting of gain or loss on
the hedged item and hedging instrument is not allowed. Therefore, the foreign exchange gain due to revaluation
of receivable from foreign currency receivable arising from forward contract will be reported separately, instead
of being netted against the exchanges loss of P300 [(P.1865 P.1835) x 100,000 FCs.]
29. c the question is related to purchase transaction or exposed liability, therefore the
payment of the liability is equivalent to the spot rate on the date of settlement.
30. b
20x4
Date of transaction (12/1/20x4)
Balance sheet date (12/31/20x4)
Foreign exchange currency loss per FC
Multiplied by: No. of FC
Foreign exchange currency loss
.0095
.0096
P
.0001
1,000,000
P
100
20x5
Balance sheet date (12/31/20x4)
Date of settlement (1/10/20x5)
Foreign exchange currency gain per FC
Multiplied by: No. of FC
Foreign exchange currency gain
.0096
.0094
P .0002
1,000,000
P
200
31. c
Balance sheet date (12/31/20x4)
Date of settlement (7/1/20x5)
Foreign exchange currency loss
P125,000
140,000
P 15,000
P
P
.940
.930
.010
100,000
P 1,000
It should be noted that since, the forward contract was not designated as a hedge, offsetting of gain or loss on
the hedged item and hedging instrument is not allowed. Therefore, the foreign exchange gain due to revaluation
of payable to foreign exchange dealer arising from forward contract will be reported separately, instead of being
netted against the exchanges loss of P1,500 [(P.945 P.93) x 100,000 FCs.]
34. c
It was assumed that the forward contract was designated as a hedging instrument.
Hedged Item: Exposed Asset (Receivable)
1/1: Date of transaction spot rate
12/31: Balance sheet date
Foreign exchange currency loss per FC
Multiplied by: No. of FC
Foreign exchange currency loss
.945
.930
P
.015
100,000
P 1,500
P 1,500
.940
.930
P .010
100,000
P 1,000
P
1,000
500
35. d
It was stated in the requirement that the forward contract will not be used, therefore, only
the loss on hedged item will be recognized.
Hedged Item: Exposed Asset (Receivable)
1/1: Date of transaction spot rate
12/31: Balance sheet date
Foreign exchange currency loss per FC
Multiplied by: No. of FC
Foreign exchange currency loss
.945
.930
P
.015
100,000
P 1,500
36. d
Date of transaction (4/8) : P1 / .65 FC (direct quote)
Date of settlement (5/8): P1/ .70 FC (direct quote)
Foreign exchange currency loss per FC
Multiplied by: No. of FC
Foreign exchange currency loss
1.54
1.43
P
.11
35,000
P 3,850
37. d the amount of sales should be the spot rate on the date of transaction (or the balance
sheet date - historical rate). I.e., P1.7241 x 10,000 FCs = P17,241.
38. e
1/1: Date of transaction spot rate
12/31: Balance sheet date
Foreign exchange currency gain per FC
Multiplied by: No. of FC
Foreign exchange currency gain
P 1.7241
1.8182
P .0941
10,000
P
941
39. b
Balance sheet date (12/31/20x4)
Date of settlement (1/30/20x5)
Foreign exchange currency loss per FC
Multiplied by: No. of FC
Foreign exchange currency loss
P
P
P
1.8182
1.6666
.1516
10,000
1,516
40. a since accounts payable is an exposed account meaning their value will fluctuate based
on the spot exchange rates, the value of the accounts payable should be the value on
May 8, i.e., the spot rate of P1.25 (P.15 x 2,000,000 FCs = P2,500,000).
41. c
5/8: Date of transaction spot rate
5/31: Balance sheet date
Foreign exchange currency loss per FC
Multiplied by: No. of FC
Foreign exchange currency loss
1.25
1.26
P
0.01
2,000,000
P
20,000
P8,000
6,900
P 1,100
44. d
4/8/20x3: Date of transaction
12/31/20x3: Balance sheet date
Foreign exchange currency loss
P 97,000
103,000
P 6,000
P103,000
105,000
P 2,000
45. d
Theories
1. False
2. False
3. True
4. False
5. True
6.
7.
8.
9.
10,
True
False
True
False
True
11.
12.
13.
14.
15.
True
D
C
C
B
16.
17.
18.
19.
20.
d
d
c
b
a
21.
22.
23.
24.
25.
c
b
a
d
b
26.
27.
28.
29.
30.
d
b
d
a
31.
32.
33.
34.
35.
c
d
d
b
b
36
37.
38.
39.
b
d
c
a