11-foreign-currency-transactionsxx.pdf

PRACTICAL ACCOUNTING 2 THEORY & PRACTICE ADVANCE ACCOUNTING FOREIGN CURRENCY TRANSACTIONS QUIZZER

Foreign Currency Transactions Accounting for Foreign Currency Transactions, Foreign Currency Financial Statements Translation and Financial Reporting in Hyperinflationary Economics An exchange rate is a measure of how much of one currency may be exchanged for another currency and several terms are used to describe exchange rates. 1. A direct quote measures how much of the domestic currency must one exchanged to receive one unit of a foreign currency, (i.e. Peso: Foreign Currency) Indirect quote measure how many units of a foreign currency will be received for one unit of domestic currency, (i.e. Foreign Currency: Peso) 2. A currency may either strengthen (gain) or weaken (lose) relative to another currency. A strengthening of a currency means that the directly quoted amount decreases and the indirectly quoted amount increases. The opposite would be true for a weakening currency. 3. Buying and selling rates of exchange respectively represent what a currency broker is willing to pay to acquire or sell a currency. 4. A spot rate indicates the number of units of a currency that would be exchanged for one unit of another currency on a given date. 5. A forward rate establishes, at one point in time, the number of units of one currency to be exchanged for one unit of another currency at a specified future date. On a given date, different forward rates may exist for the same currency, depending on how far in the future an exchange is to take place. a. The agreement to exchange currencies at a future date is called a forward contract. b. A premium or discount refers to when the forward rate is greater than or less than the spot rate respectively. Accounting for Foreign Currency Transactions - PAS No. 2J Revised a. Initial Recognition. A foreign currency transaction should be recorded initially at the rate of exchange at the date of transaction (use of averages is permitted if they are a reasonable appropriation-of actual) b. Reporting at Subsequent Balance Sheet Dates Foreign currency monetary amounts should be reported using the closing rate. Non-monetary items earned at historical cost should be reported using the exchange rate at the date of the transaction. Non-monetary items carried at fair value should be reported at the rate that existed when the fair values were determined. c. Recognition of Exchange Differences Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during Foreign Currency Transactions - Lecture

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Advance Accounting the period or in previous financial statements shall be recognized in profit or loss in the period in which they arise. However, exchange differences arising on a monetary item that forms part of a reporting entity's net investment in a foreign operation shall be recognized in profit or loss in the separate financial statements of the reporting entity or the individual financial statements of the foreign operation, as appropriate. 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 other comprehensive income to profit or loss on disposal of the net investment. Furthermore, when a gain or loss on a non-monetary item is recognized in other comprehensive income, any exchange component of that gain or loss shall be recognized in other comprehensive income. Conversely, when a gain or loss on a non-monetary item is recognized in profit or loss, any exchange component of that gain or loss shall be recognized in profit or loss. Based on the above provisions, the following rules and procedures should be observed: 1. Foreign currency transactions are transactions denominated in a currency other than the entity's functional currency. Foreign currency transactions may produce receivables or payables that are fixed in terms of the amount of foreign currency that will be received or paid. 2. A change in exchange rates between the peso and the foreign currency in which a transaction is denominated increases or decreases the expected amount of peso. The increase or decrease in expected peso is a foreign currency transaction gain or loss that generally should be included in determining net income for the period in which the exchange rate changes. 3. Likewise, a transaction gain or loss (measured from the transaction date or the most recent intervening balance sheet date, whichever is later) realized upon settlement of a foreign currency transaction generally should be included in determining net income for the period in which the transaction is settled. 4. For other than forward exchange contracts the following should apply to all foreign currency transactions of an enterprise and its investees. a. At the date a transaction is recognized, each asset, liability, revenue, expense, gain, or loss arising from the transaction should be measured and recorded in the functional currency of the recording entity by use of the exchange rate in effect at that date. b. At each balance sheet date, recorded balances that are denominated in a currency other than the functional currency of the recording entity should be adjusted to

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Foreign Currency Transactions reflect the current exchange rate. These adjustments should be currently recognized in the income statement. II.

Foreign Currency Financial Statements Translation - PAS No. 2 (Revised) Basic Steps for Translating Foreign Currency Amounts into the Functional Currency The primary economic environment in which an entity operates is normally the one in which it primarily generates and expends cash. An entity considers the following factors in determining its functional currency: a. the currency: a. 1.that mainly influences sales prices for goods and services (this will often be the currency in which sales price for its goods and services are denominated and settled); and a. 2. of the country who competitive forces and regulations mainly determine the sales prices of the goods and services. b. the currency that mainly influences labor, materials, and other costs of providing goods or services will often be the currency in which sales price for its goods and services are denominated and settled)

Steps apply to a stand-alone entity, an entity with foreign operations (such as a parent with foreign subsidiaries), or a foreign operation (such as a foreign subsidiary or branch). 1. The reporting entity determines its functional currency 2. The entity translates all foreign currency items into its functional currency 3. The entity reports the effects of such translation in accordance with paragraph 20-37 and 50 of PAS No. 21. Functional Currency versus Presentation Currency Functional currency is the currency of the primary economic environment in which an entity operates. On the other hand, presentation currency is the currency in which the financial statements are presented. In most cases, a stand-alone entity's presentation currency is also its functional currency. PAS 21 specifies two approaches to translation and the approach to be used depends on whether the functional currency (is not the currency of a hyperinflationary economy) of the foreign subsidiary is the same as the presentation currency and whether the books are kept in the functional currency: Method 1: Translation from the Functional Currency into the Presentation Currency (Closing/Current Rate Method / Net Investment Method / Translated Method). This method is used on the following basis: • Foreign operations operates independently in economic and financial matters (or Foreign Currency Transactions - Lecture

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Advance Accounting

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not Integral to the operations of the parent) • Functional currency (is not the presentation currency) should be the LCU (local currency unit - the currency of the country in which the subsidiary operates) or a third country currency. • The functional currency is not the currency of a hyperinflationary economy, otherwise apply PAS 29. • The main features of the closing / current rate method are summarized as follows: Assets and liabilities both monetary and non-monetary are translated at current rate on the date of the balance sheet Stockholder's equity accounts are translated using historical rates in effect at the time equities were first recognized (date of investment) in the foreign entity's accounting records, except:  Beginning retained earnings is set equal to the ending balance of last year  Dividends - historical rate on date of declaration, otherwise date of payment Revenue and expense of the foreign operation are translated at the dates of transactions, i.e. actual or spot rates (historical rates). For practical reasons, the average rate is usually used for items whose transactions are numerous and occur evenly throughout the year, for example, sales, purchases and operating expenses, but, if exchange rates fluctuate significantly, the use of the average for a period is inappropriate. All resulting difference (translation gains or tosses) shall be recognized in other comprehensive income until the disposal of the foreign operation, when they are included in profit or loss.

Method 2: Translation into the Functional Currency / Remeasurement of Foreign Currency Financial Statements to the Functional Currency (Temporal Method/ Remeasurement Method). This method is used on the following basis: • Foreign operation is integrated with parent's operation. • Functional currency should be the parent's currency / presentation or reporting currency • The main features of the temporal or remeasurement method are summarized as follows: > Monetary assets and liabilities (e.g. cash and fixed deposits, receivables, payables and most liabilities) shall be translated (remeasured) using the closing rate > Non-monetary items at historical cost or carried at past exchange price (e.g. fixed assets, investments at cost, prepaid items except prepaid interest, inventories and intangible assets) shall be translated (remeasured) using the exchange rate at the date of the transaction (historical rate)  Non-monetary items at fair value or at current of future exchange prices (e.g., trading

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Foreign Currency Transactions

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securities, inventories carried at replacement cost and revalued fixed assets) shall be translated (remeasured) using the exchange rate at the date of the revaluation or fair value determination Stockholders' equity accounts - are translated (or remeasured) using the historical rates in effect at the time equities were first recognized (date of« investment) in the foreign entity's accounting records, except:

Beginning retained earnings is set equal to the ending balance of lastyear  Dividends - historical rate on date of declaration, otherwise date of payment  Income statement items: Related to non-monetary items such as cost of sales, depreciation of plant assets, amortization of intangible assets, amortization of deferred charges or credits and other allocation of non-monetary items shall be translated (or remeasured) using historical rate (either at the dale of purchase for historical cost items or the date of valuation for items carried at fair value) Not related to non-monetary items (or related to monetary items) such as sales, purchases, expenses and income items that result in inflow/ outflow of monetary items shall be translated (remeasured) using actual rate (historical rate): however for practical reasons, an average rate may be used  Resulting difference (remeasurement gain or loss) should be reported as profit or loss for the period; remeasurement gain or loss arising from the revaluation of a nonmonetary item is taken to other comprehensive income if the revaluation gains or losses are taken to other comprehensive income. Goodwill arising from the Acquisition of Subsidiaries Pas 21 par. 47 states that: "Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amount of assets and liabilities arising on the acquisition of that foreign operation shall be treated as assets and liabilities of the foreign operations. Thus they shall be expressed in the functional currency of the foreign operation and shall be translated at the closing rate. II

Objective of PAS No. 2? The objective of PAS No. 29 is to establish specific standards for enterprises reporting in the currency of a hyperinflationary economy, so that the financial information provided is meaningful.

Restatement of Financial Statements Foreign Currency Transactions - Lecture

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Advance Accounting The basic principle in PAS No. 29 is that the financial statements of an entity that reports in the currency of a hyperinflationary economy should be stated in terms of the measuring unit current at the balance sheet date. Comparative figures for prior period (s) should be restated into the same current measuring unit. Restatements are made by applying a general price index. Items such as monetary items that are already stated at the measuring unit at the balance sheet date are not restated. Other items are restated based on the change in the general price index between the date those items were acquired or incurred and the balance sheet date. Historical Cost Financial Statements 1. Monetary items are not restated. 2. Assets and liabilities linked by agreement to changes in prices should be adjusted in accordance with the agreement. 3. All other assets and liabilities are non-monetary. Some non-monetary items are carried at amounts current at the PAS No. 29 describes characteristics that may indicate that an economy is hyperinflationary. However, it concludes that it is a matter of judgment when restatement of financial statements becomes necessary. When an economy ceases to be hyperinflationary and an enterprise discontinues the preparation and presentation of financial statements in accordance with PAS No. 29, it should treat the amounts expressed in the measuring unit current at the end of the previous reporting period as the basis for the carrying amounts in its subsequent financial statements. Functional Currency is the Currency of a Hyperinflationary Economy For an entity whose functional currency is the currency of a hyperinflationary economy, and for which the comparatives amounts are translated into the currency of a different hyperinflationary shall be translated into a different presentation currency using the following procedures: a. All amounts (i.e., assets, liabilities, equity items, income and expenses, including comparatives) shall be translated at the closing rate at the date of the most recent balance sheet (i.e., last year's comparatives, as adjusted for subsequent changes in the price level, are translated at this year's closing rate), except that b. When amounts are translated into the currency of a non-hyperinflationary economy, comparative amounts shall be those that were presented in the prior year financial statements (i.e., not adjusted for subsequent changes in the price level or subsequent changes in exchange rates).

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Foreign Currency Transactions MCQ - Theory 1. An entity will primarily generate and expend cash in one primary economic environment. According to IAS 21, the Effects of Changes in Foreign Exchange Rates, the correct term for the currency of this primary economic environment is the a. Presentation currency c. Reporting currency b. Functional currency d. Foreign currency Punzalan 2014 2.

According to IAS 21, The Effects of Changes in Foreign Exchange Rates, at which rate should an entity's non-current assets be translated when its functional currency figures are being translated into different presentation currency? a. The historical rate c. The average rate b. The closing rate d. The spot exchange rate Punzalan 2014

3.

According to IAS 21, The Effects of Changes in Foreign Exchange Rates, exchange differences should be recognized either in profit or loss or in other comprehensive income. Are the following statements about the recognition of exchange differences in respect of foreign currency transaction reported in an entity's functional currency TRUE or FALSE? 1. An exchange difference on the settlement of a monetary item should be recognized in profit or loss. 2. Any exchange difference on the translation of a monetary item at a rate different to that used at initial recognition should be recognized in other comprehensive income. Statement 1 Statement 2 A. False False B. False True C. True False D. True True Punzalan 2014

4.

On October 1, 2009, Mild Co., purchased machinery from a foreign company with payment due on April 1, 2010. If Mild's 2009 operating income included no foreign currency transaction gain or loss, the transaction could have been a. Resulted in an extraordinary gain. b. Been denominated in Philippine pesos. c. Cause a foreign currency transaction gain to be reported as a contra account against machinery. d. Caused a foreign currency translation gain to be reported in other comprehensive income. Punzalan 2014

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Advance Accounting 5.

On October 1, 2009, Velec Co. contracted to purchase foreign goods requiring payment in local current units (LCU) one month after the receipt of the goods at Velec's factory. Title to the goods passed on December 15, 2009. The goods were still in transit on December 31, 2009. Exchange rates were one peso to 22 LCUs, 20 LCUs, and 21 LCUs on October 1, December 15, and December 31, 2009, respectively. Velec should account for the exchange rate fluctuation in 2009 as a. An ordinary loss included in net income. b. An ordinary gain included in net income. c. An extraordinary gain. d. An extraordinary loss. Punzalan 2014

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In preparing consolidated financial statements of a Philippine parent company with a foreign subsidiary, the foreign subsidiary's functional currency is the currency a. In which the subsidiary maintains its accounting records. Punzalan 2014 b. Of the country in which the subsidiary is located. c. Of the country in which the parent is located. d. Of the environment in which the subsidiary primarily generates and expends cash.

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A foreign subsidiary's functional currency is its local currency, which has not experienced significant inflation. The weighted average exchange rate for the current year is the appropriate exchange rate for translating Wages expenses Sales to customers A. Yes No B. Yes Yes C. No Yes D. No No Punzalan 2014

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The basic purpose of derivative financial instrument is to manage some kind of risk such as all of the following EXCEPT a. Stock price movements. b. Interest rate variations. c. Currency fluctuations. d. Uncollectibility of accounts receivable. Punzalan 2014

9.

Derivatives are financial instruments that derive their value from changes in a benchmark based on any of the following EXCEPT a. Stock prices b. Mortgage and currency rates c. Commodity prices d. Discounts on accounts receivable Punzalan 2014

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Foreign Currency Transactions 10. Derivative instruments are financial instruments or other contracts that must contain a. One or more underlying’s, or one or more notional amounts. b. No initial net investment or smaller net investment than required for similar response contracts. c. Terms that do not require or permit net settlement or delivery of an asset. d. All of the above Punzalan 2014 11. Which of the following is not a distinguishing characteristic of a derivative instrument? a. Terms that require or permit net settlement. b. Must be "highly effective" throughout its life. c. No initial investment. d. One or more underlying’s and notional amounts. Punzalan 2014 12. Which of the following is an underlying? a. A credit rating. b. A security price. c. An average daily temperature. d. All of the above could be underlying’s. 13. An example of a notional amount is a. Number of barrels of oil. b. Interest rates.

Punzalan 2014 c. Currency swaps. d. Stock price.

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14. Which of the following is not a derivative instrument? a. Future contracts c. Interest rate swaps Punzalan 2014 b. Credit indexed contracts d. Variable annuity contracts 15. In accordance with IAS 39 Financial instruments: Recognition and measurement, which of the following terms best describes a compound financial instrument component of a hybrid instrument that also includes a non-derivative host contract? a. An available for sale financial assets b. An embedded derivative c. A held to maturity investment d. A financial asset held for trading Punzalan 2014 16. In accordance with IFRS 7 Financial instrument: Disclosure, which of the following best describes the risk that an entity will encounter if it has difficulty in meeting obligations associated with its financial liabilities? a. Liquidity risk c. Financial risk b. Credit risk d. Payment risk Punzalan 2014 Foreign Currency Transactions – MCQ Theory

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Advance Accounting 17. In accordance with IFRS 7 Financial instrument: Disclosure, which of the following best describes credit risk? a. The risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Punzalan 2014 b. The risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. c. The risk that the fair value associated with an instrument will vary due to changes in the counterparty's credit rating. d. The risk that an entity's credit facilities will be withdrawn due to cash flow sensitivities. 18. Financial instruments sometimes contain features that separately meet the definition of a derivative instrument. These features are classified as a. Swaptions c. Embedded derivative instrument b. Notional amounts d. Underlyings Punzalan 2014 19. Which of the following criteria must be met for bifurcation to occur? a. The embedded derivative meets the definition of a derivative instrument. b. The hybrid instrument is regularly recorded at fair value. c. Economic characteristics and risks of the embedded instrument are clearly and closely related to those of the host contract. d. All of the above. Punzalan 2014 20. The process of bifurcation a. Protects an entity from loss by entering into a transaction. b. Includes entering into agreements between two counterparties to exchange cash flows over specified period of time in the future. c. Is the interaction of the price or rate with an associated asset or liability. d. Separates an embedded derivative from its host contract. Punzalan 2014 21. Hedge accounting is permitted for all of the following types of hedges EXCEPT A. Trading securities, B. Unrecognized firm commitments. C. Available for sale securities. D. Net investments in foreign operations. Punzalan 2014 22. Which of the following is a general criterion for a hedging instrument? a. Sufficient documentation must be provided at the beginning of the process. b. Must be highly effective only in the first year of the hedge's life. c. Must contain a non-performance clause that makes performance probable. d. Must contain one or more underlying’s. Punzalan 2014

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Foreign Currency Transactions 23. A hedge of the exposure to changes in the fair value of a recognized asset or liability, or an unrecognized firm commitment, is classified as a a. Fair value hedge c. Foreign currency hedge b. Cash flow hedge d. Underlying Punzalan 2014 24. Gains and losses on the hedged asset or liability and the hedged instrument for a fair value hedge will be recognized a. In current earnings. b. In other comprehensive income. c. On a cumulative basis from the change in expected cash flows from the hedged instrument. d. On the balance sheet either as an asset or a liability. Punzalan 2014 25. Gains and losses of the effective portion of a hedging instrument will be recognized in current earnings in each reporting period for which of the following? Fair value Cash flow hedge hedge A. Yes No B. Yes Yes C. No No D. No Yes Punzalan 2014 26. Which of the following is not a type of foreign currency hedge? Punzalan 2014 a. A forecasted transaction. c. A recognized asset or liability. b. An available for sale security. d. An unrecognized firm commitment. 27. The risk of an accounting loss from a financial instrument due to possible failure of another party to perform according to terms of the contract is known as a. Off-balance-sheet risk c. Credit risk b. Market risk d. Investment risk Punzalan 2014 28. Disclosure of credit risk of financial instruments with off-balance-sheet risk does not have to include a. The amount of accounting loss the entity would incur should any party to the financial instrument fail to perform. b. The entity's policy of requiring collateral or security. c. The class of financial instrument held. Punzalan 2014 d. The specific names of the parties associated with the financial instrument. Foreign Currency Transactions – MCQ Theory

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Advance Accounting 29. Disclosure of information about significant concentration of credit risk is required for a. All financial instruments. b. Financial instruments with off-balance-sheet credit risk only. c. Financial instruments with off-balance-sheet market risk only. Punzalan 2014 d. Financial instruments with off-balance-sheet risk of accounting loss only. 30. Examples of financial instruments with off-balance-sheet risk include ail of the following EXCEPT a. Outstanding loan commitments written. b. Recourse obligations on receivables. c. Warranty obligations. d. Future contracts Punzalan 2014 31. Whether recognized or unrecognized in an entity's financial statements, disclosure of the fair values of the entity's financial instruments is required when a. It is practicable to estimate those values. b. The entity maintains accurate cost records. c. Aggregated fair values are material to the entity. d. Individual fair values are material to the entity. Punzalan 2014 32. On January 2, 2009, Canary Co. received a two-year P5,000,000 loan, which calls for payments to be made at the end of each year based on the prevailing market rate at January 1 of each year. The interest rate at January 2, 2009 was 10%. Another company, Crown Co. also has a two-year P5,000,000 loan, but Crown's loan carries a fixed interest rate of 10%. Canary does not want to bear the risk that interest rates may increase in 2010. Crown believes that rates may decrease and it would prefer to have variable debt. Through an intermediary, the two companies enter into an interest rate swap whereby Crown agrees to make Canary's interest payment in 2010 and Canary agrees to make Crown's interest payment in 2010. a. Receive P200,000 from the investment company. b. Receive P190,000 from the investment company. c. Pay the investment company P200,000. d. Purchase the shares of Petrol at PI00 per share and sell the shares at P120 per share to the investment company. Punzalan 2014 33. Which of the following is not a derivative? a. Interest rate swap agreement b. Future and forward contract c. Regular way purchase or sale d. Option

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Foreign Currency Transactions 34. It is an asset, liability, firm commitment, highly probable forecast transaction or net investment in a foreign operation that exposes the entity to risk changes in fair value or future cash flows and is designated as being hedged a. Hedged item c. Hedge accounting b. Hedging instrument d. Hedge effectiveness Punzalan 2014 35. An entity has a subsidiary that operates in a country where the exchange rate fluctuates wildly and there are seasonal variations in the income and expenses patterns. Which of the following rates of exchange would probably be used to translate the foreign subsidiary's income statement? a. Year-end spot rate b. Average for the year c. average for the quarter-end rates. d. Average rates for each individual month of the year. Dayag 2013

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Advance Accounting MCQ - Problems FOREIGN CURRENCY TRANSACTIONS Exchange Rate Indirect Quotation 36. If one Taiwanese dollar can be exchanged for PI.025, the fraction for computing indirect quotation of exchange rate expressed in Taiwanese currency would be: a. 0.975/1.00 c. 1.00/1.025 b. 1.00/0.975 d. 1.025/1.00 Punzalan 2014 37. If one (1) Euro can be exchanged for P69.25 Philippine peso, the indirect exchange rate of Euro per Philippine peso is: a. 0.014 Euro c. 6.825 Euro b. 6.925 Euro d. 6.725 Euro Guerrero 2013 Direct Quotation 38. In October 2011, United Corporation obtained a loan amounting to US $ 120,000 for the purchase of machinery and equipment. By the end of the year, one-half of the loan was still unpaid and a ten per cent decrease has taken place. If the foreign loan payable account is correctly reported in the balance sheet at P1,848,000, the rate of exchange at the time the loan was obtained must have been: a. $1.00 = P27.00 c. $1.00 = P29.00 b. $1.00 = P28.00 d. $1.00 = P30.00 Dayag 2013 39. Phil-Export Corp. sold to American customer merchandise worth US$10,000. As of PhilExport's balance sheet cut-off date on June 30, 2009, the exchange rate was P26.60. On August 15, 2009, payment was received in the form of a bank transfer whereby Phil-Export's account was credited the amount of P265,400 before any charges. At the time of acceptance of the merchandise in San Francisco, the exchange rate was P26.75. The appropriate exchange rate for the recognition of the sale was: a. 26.54 c. 26.63 b. 26.60 d. 26.75 Punzalan 2014 Direct & Indirect Quotation 40. If P56.50 can be exchanged for 1 US dollar, the direct and indirect exchange rate quotations are: Direct Indirect a. P56.50 $1 b. P 56.50 $.018 c. P1.00 $56.50 d. P 1.00 $.018 Guerrero 2013

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Foreign Currency Transactions Revenue Cyle Sales/Receivable 41. Filcraft Corp. sold metal crafts to a US firm for $70,000 and pertinent information on exchange conversion rates related to this transaction were as follows: Conversion Rate (Peso to US$) Nov. 4 Receipt of order P27.40 Nov. 22 Date of shipment 27.50 Dec. 31 Balance sheet date 27.60 Jan. 6 Date of collection 27.00 The sale would be appropriately recorded at: a. 1,890,000 c. 1,925,000 b. 1,918,000 d. 1,932,000 Punzalan 2014 42. Pinoy Exports, Inc. sold furniture to a US customer for 10,000 US dollar. Pertinent exchange rates relating to this transactions areas follows: Conversion Rate (Peso to US$) November 10,2012; Receipt of order P56.10 November 22,2 012; Date of shipment P56.20 December 31, 2012; Statement of FP date P56.50 January 5,2013; Settlement date P56.45 The sale would be appropriately recorded at: a. P562,000 c. P565,000 b. P561,000 d. P564,500 Guerrero 2013 Balance Sheet Account Balances Royalties Payable 43. On November 30,2010, Tyrola Publishing Company, located in llocos Norte, executed a contract with Ernest Blyton, an author from Canada, providing for payment of 10% royalties on Canadian sales of Blyton's book. Payment is to be made in Canadian dollars each January 10 for the previous year's sales. Canadian sales of the book for the year ended December 31,2011, totalled $50,000 Canadian. Tyrola paid Blyton his 2011 royalties on January 10,2012. Tyrola's 2011 financial statements were issued on February 1,2012. Spot rates for Canadian dollars were as follows: November30, 2010 P32.73 January 1,2011 32.79 December 31,2011 33.00 January 16,2012 33.10 Foreign Currency Transactions – MCQ Problems

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Advance Accounting How much should Tyrola accrue for royalties payable at December 31, 2011? a. 163,950 c. 163,650 b. 165,500 d. 165,000

Dayag 2013

44. On November 30, 2008 Tyrola Publishing Co., located in Manila, executed a contract with Ernest Blyton, an author from Canada, providing for payment of 10% royalties on Canadian sales of Blyton's book. Payment is to be made in Canadian dollars each January 10 for the previous year's sales. Canadian sales of the book for the year ended December 31,2009 totaled $50,000 Canadian dollars. Tyrola paid Blyton his 2006 royalties on January 10, 2010. Tyrola's 2009 financial statements were issued on February Canadian dollars were as follows: November 30, 2008 P27.87 January 1,2009 27.88 December 31, 2009 27.89 January 10, 2010 27.90 How much should Tyrola accrue for royalties payable at December 31, 2009? a. 139,350 c. 139,450 b. 139,400 d. 139,500 Punzalan 2014 Cost of Assets 45. Century Buildings Company, a parent company of a group of companies, acquired machinery for US $50,000 on October 31, 2011 when the peso/ dollar rate was P26.00, the liability is to be paid six-months after. By the end of the year, the peso/dollar rate drastically increased to P32.00 and this is considered as a devaluation or severe fluctuation. On its year-end balance sheet, Century should report the machinery at: a. 1,040,000 c. 1,300,000 b. 1,280,000 d. 1,600,000 Dayag 2013 46. Waling-Waljng Enterprises purchased equipment for US $36,000 on May 31, 2011 when the exchange rate was $1.00 = P23.00. The company elected not to take a forward contract on this obligation as a hedge against adverse exchange rate fluctuations. At June 30, 2011, the end of the company's fiscal period, one-half of the obligation remained unpaid and the exchange rate has dropped to $1.00 = P25.00. On the company's June 30,2011 balance sheet, the equipment should be reported at a value of: a. 828,000 c. 900,000 b. 864,000 d. 936,000 Dayag 2013

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Foreign Currency Transactions 47. On April 1, 2011, Argo Company imported 10,000,000 barrels of oil from an Indonesian Company at a price of P3,185 per barrel payable in Indonesian rupiah. The invoice was paid 30 days later. Indirect exchange rates for the Indonesian rupiah were: April 1,2008: P1 = 132 rupiah April 30, 2008: P1 = 130 rupiah What is the cost of the oil? a. 132 million rupiah c. 31.85 billion b. 130 million rupiah d. 1.32 billion Dayag 2013 Trade Payable 48. Domestic Company has an accounts payable in the amount of 10,000 Bahrain Dinar on its books on October 1, 2011. This account was unpaid at the end of the fiscal year, October 31, 2011. The spot rate for the dinar was: October 1, 2011: 1 Dinar = P131 October 31. 2011: 1 Dinar = P133 On October 31, 2011, Domestic Company should report: a. An accounts payable of P1,310,000. b. An accounts payable of P1,330,000. c. An accounts payable of 10,000 Bahrain Dinar. d. An exchange gain of P20,000. Dayag 2013 49. The White Co. has the Philippine pesos as sits functional currency. On October 16, 2009, White ordered some inventory from a foreign supplier and agreed a purchase price of 160,000 local currency units (LCU). The inventory was received on November 15, 2009. At December 31, 2009, the inventory remained on hand and the trade payable balance for the inventory purchase remained outstanding. The supplier was paid on January 27, 2010 and the inventory was sold on January 31, 2010. The following information about exchange rates is available: October 16, 2009 P1.00 = 2.60 LCU November 15, 2009 P1.00 = 2.50 LCU December 31, 2009 P1.00 = 2.40 LCU January 27, 2010 P1.00 = 2.25 LCU According to IAS 21, The Effects of Changes in Foreign Exchange Rates, at what amount should the trade payable balance due to the supplier be presented in the statement of financial position at December 31, 2009? a. 61,538 c. 66,667 b. 64,000 d. 71,111 Punzalan 2014

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Advance Accounting Transaction Gains & Losses At Balance Sheet Date Sales 50. On September 1, 2009, Cano & Co. sold merchandise to a foreign firm for 250,000 francs. Terms of the sale require payment in francs on February 1, 2010. On September 1, 2009, the spot exchange rate was PI.20 per franc. At December 31, 2009, Cano's year-end, the spot rate was P1.19, but the rate increased to PI.22 by February 1, 2010, when payment was received. How much should Cano report as foreign exchange transaction gain or loss in its 2010 income statement? a. 0 c. 5,000 gain b. 2,500 loss d. 7,500 gain Punzalan 2014 Credit Purchases 51. On November 15, 2011, Celt, Inc., a Philippine Company, ordered merchandise FOB shipping point from Japanese Company for 200,000 yens. The merchandise was shipped and invoiced to Celt on December 10,2008. Celt paid the invoice on January 10, 2012. The spot rates for yens on the respective dates are as follows: November 15,2011 December 10,2011 December 31,2011 January10,2012

P.4955 4875 4675 4475

In Celt's December 31,2011 income statement, the foreign exchange gain is: a. 9,600 c. 4,000 b. 8,000 d. 1,600

Dayag 2013

52. On September 1, 2011, Rosan Corp. received an order for equipment from a foreign customer for 300,000 local currency units (LCU) when the Philippine peso equivalent was P96,000. Rosan shipped the equipment on October 15,2011, and billed the customer for 300,000 LCU when the Philippine peso equivalent was P100,000. Rosan received the customer's remittance in full on November 16, 2011, and sold the 300,000 LCU for P105,000. In its income statement for the year ended December 31, 2011, Rosan should report a foreign exchange transaction gain of: a. 0 c. 5,000 b. 4,000 d. 9,000 Dayag 2013

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Foreign Currency Transactions 53. Hunt Co. purchased merchandise for 300,000 francs from a vendor in Belgium on November 30, 2009. Payment in Belgium francs was due on January 30, 2010. The exchange rates to purchase one franc were as follows: Nov. 30,2009 Dec. 31,2009 Spot rate P1.65 P1.62 30-day rate 1.64 1.59 60-day rate 1.63 1.56 In its December 31, 2009, income statement, what amount should Hunt report as foreign exchange gain? a. 12,000 c. 6,000 b. 9,000 d. 0 Punzalan 2014 54. On November 15, 2009, Celt, Inc., a Philippine company located in Baguio City, ordered merchandise FOB shipping point from a German company for 200,000 marks. The merchandise was shipped and invoiced to Celt on December 10, 2009. Celt paid the invoice on January 1, 2010. The spot rates for marks on the respective dates are as follows: November 15, 2009 P22.4955 December 10, 2009 22.4875 December 31,2009 22.4675 January 10, 2010 22.4475 In Celt's December 31, 2009 income statement, the foreign exchange gain is a. 9,600 c. 4,000 b. 8,000 d. 1,600 Punzalan 2014 55. On November 15,2012, Hobbies, Inc. of Manila, ordered merchandise FOB shipping point from Nippon Company of Japan for 500,000 yen. The merchandise was shipped and invoiced to Hobbies on December 10,2012. Hobbies paid the invoice on January 10, 2013. The exchange rates for yens on the respective dates are as follows: November 15,2012 P0.2500 December 10, 2012 P02475 December 31, 2012 P0.2375 January 10,2013 P0.2300 In Hobbies' December 31, 2012 statement of comprehensive income, the forex gain (loss) to be reported is: a. P6,250 c. P5,000 b. P(6,250) d. P(5,000) Guerrero 2013

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Advance Accounting 56. Lils Hobby Shop buys goods from Waigo Company in Hongkong, payable in Hongkong dollars, at a credit term of 60 days. On June 30, 2013, the unadjusted balance sheet of Lils reflects a payable to Waigo representing purchase of goods worth HK$10,000 when Hongkong dollars was going at P7.50 for 1HD$. What will be Lils forex gain or loss on June 30, 2013, if the prevailing exchange rate is quoted at HK$0.12987/P1? a. P2,000 gain c. P1,000 gain b. P2,000 loss d. P1,000 loss Guerrero 2013 57. On July 1,2012, Manila Company purchased raw materials from a Japanese supplier for 2,500,000 yen and opens the corresponding letter of credit (LC) with City Bank to cover its importation. The company's year end is December 31. The spot rate issued by the bank for Japanese yen at various dates is as follows: July 1,2012 (date of arrival of goods) P0.50 December 31,2012 P0.54 July 1,2013 (date of settlement) P0.52 In its statement of comprehensive income for 2013, what amount should Manila Company include as a foreign exchange gain (loss)? a. P(5 0,000) c. P(100,000) b. P150,000 d. P50,000 Guerrero 2013 Purchase & Borrowing 58. Ball Corp. had the following foreign currency transactions during 2011: • Merchandise was purchased from a foreign supplier on January 20,2011 for the Philippine peso equivalent of P90,000. The invoice was paid on March 20,2011 at the Philippine peso equivalent of P96,000. * On July 1, 2011, Ball borrowed the Philippine peso equivalent of P500,000 evidenced by a note that was payable in the lender's local currency on July 1, 2012. On December 31, 2011, the Philippine peso equivalents of the principal amount and accrued interest were P520,000 and P26,000, respectively. Interest on the note is 10% per annum. In Ball's 2011 income statement, what amount should be included as foreign exchange loss? a. 0 c. 21,000 b. 6,000 d. 27,000 Dayag 2013

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Foreign Currency Transactions 59. On October 1, 2011, Boni Co. purchased merchandise worth a total of 100,000 Swiss francs from its Swiss supplier, payable within 30 days under an open account arrangement. Boni Co. issued a 30-day, notes payable in Swiss francs. On October 31, 2011, Boni Co. paid the note. The following information on spot rates (P/SF) is provided: Buying Selling October 01,2011 P24.03 P24.15 October 31,2011 24.10 24.22 Boni Co.'s foreign exchange gain or loss on the transaction is: a. 5,040 loss c. 12,075 gain b. 7,000 loss d. 19,110 loss Dayag 2013 60. Ball Corp. had the following foreign currency transactions during 2009: • Merchandise was purchased from a foreign supplier on January 20, 2009, for the Philippine peso equivalent of P90,000. The invoice was paid on March 20, 2009, at the Philippine peso equivalent of P96,000. • On July 1, 2009, Ball borrowed the Philippine peso equivalent of P500,000 evidenced by a note that was payable in the lender's local currency on July 1, 2010. On December 31, 2009, the Philippine peso equivalents of the principal amount and accrued interest were P520,000 and P26.000, respectively. Interest on the note is 10% per annum. In Ball's 2009 income statement, what amount should be included as foreign exchange transaction loss? a. 0 c. 21,000 b. 6,000 d. 27,000 Punzalan 2014 61. On June 15, 2010, Boni Co. purchased merchandise worth 100,000 Swiss francs from its supplier in Switzerland payable within 30 days under an open account arrangement. Boni issued a 30-day, 6% note payable in Swiss francs. On July 15, 2010, Boni paid the note in full. The following information in spot rates (P/SF) is provided: Buying Selling June 15,2010 P 24.03 P 24.15 July 15,2010 24.10 24.22 What is Boni's foreign exchange gain (loss) for the transaction? a. (5,040) c. (7,035) b. 12,075 d. (19,110) Punzalan 2014

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Advance Accounting After Balance Sheet Date Sales 62. On September 1,2012, Pasig Company, a Philippine company, sold construction materials to Saudi Arabia for 20,000 Rial. Terms of the sale require payment in Rial on February 1, 2013. On September 1, 2012, the spot exchange rate was P15.50 per 1 Rial. At December 31, 2012 Pasig's year end, the spot rate was P14.90, but the rate increased to P15.02 by February 1, 2013, when payment was received. How much should Pasig report as foreign exchange gain or loss in its 2013 statement of comprehensive income? a. P 0 c. P 2,400 loss b. P 2,400 gain d. P40,000 gain Guerrero 2013 Borrowings 63. On July 1,2011, Bato Company lent P120,000 to a foreign supplier, evidenced by an interest bearing note due on July 1,2012. The note is denominated in the currency of the borrower and was equivalent to 840,000 local currency units (LCU) on the loan date. The note principal was appropriately included at PI 40,000 in the receivables section of Bato's December 31,2011 balance sheet. The note principal was repaid to Bato on the July 1, 2012 due date when the exchange rate was 8 LCU to PI. In its income statement for the year ended December 31, 2012, what amount should Bato include as a foreign currency transaction gain or loss? a. 0 c. 15,000 gain b. 15,000 loss d. 35,000 loss Dayag 2013 Credit Purchases 64. On April 8, 2009, Day Corp. purchased merchandise from an unaffiliated foreign company for 10,000 units of foreign company's local currency. Day paid the bill in full on March I, 2010 when the spot rate was P0.45. The spot rate was P0.60 on April 8, 2009 and was P0.55 on December 31, 2009. For the year ended December 31, 2010, Day should report a transaction gain of a. 1,500 c. 500 b. 1,000 d. 0 Punzalan 2014

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Foreign Currency Transactions Total Forex Gain (Loss) 65. Local Corp. imported a heavy machine from the US for US$50,000 on October 10, 2009. A letter of credit was opened with a Makati branch based on the commercial invoice for US$50,000, on which Local Corp. made a 100% deposit cover based on the exchange rate of $1.00 to P27.50. Shipment of the heavy machine was effected on December 30, 2009, at which time the exporter collected the proceeds of the letter of credit when the prevailing exchange rate was $1.00 to P28.00. From the exchange rate fluctuation, Local Corp. realized: a. No gain, no loss c. A P25,000 gain b. A P5,000 gain d. A P25,000 loss Punzalan 2014 66. On July 1,2012, Makati Finance, Inc., a Pilipino company lent P200,000 to a US supplier, evidenced by an interest bearing note due on July 1, 2013- The note is equivalent to $4,000 on the loan date. The note principal was appropriately included at P210,000 in the receivables section of Makati's December 31, 2012 balance sheet. The note principal was repaid to Makati Finance, Inc. on July 1, 2013;, due date when the exchange rate was P56.50 to $1. In its statement of comprehensive income for the year ended December 31,2013, what amount should Makati finance include as a foreign exchange gain or loss? a. P0 c. P16,000 gain b. P16,000 loss d. P35,000 loss Guerrero 2013 67. On September 1, 2013 Boysen Corporation received an order for merchandise from a foreign customer for 10,000 local currency units (LCU) when the Philippine peso equivalent was P96,000. Boysen shipped the merchandise on October 15,2013, and billed the customer for 10,000 LCU when the Philippine peso equivalent was P 100,000. Boysen received the customer's remittance in full on November 16,2013, and sold the 10,000 LCU for PI05,000. In its statement of comprehensive income for the year ended December 31,2013, Boysen should report a forex gain of: a. P0 c. P5,000 b. P4,000 d. P9,000 Guerrero 2013 68. Jeep Corporation imported a machine for US$50,000 from the United States on January 10, 2013. A corresponding letter of credit (LC) was opened with Metro Bank to cover the importation. Shipment was effected on March 24,2013 at which time the exporter collected the proceeds of the LC when the exchange rate was P56.00 to US$1. On April 1, 2013, Jeep paid the LC when the exchange rate was P56.45. What is the forex gain or loss to be recognized by Jeep from the fluctuation of the exchange rate: a. P0 c. P22,500 loss b. P22,500 gain d. $25,000 loss Guerrero 2013 Foreign Currency Transactions – MCQ Problems

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Advance Accounting At Balance Sheet Date & After Balance Sheet Date 69. Petra Corporation imports merchandise from foreign companies and exports its own products to other foreign companies. The unadjusted accounts denominated in foreign currencies (FC) at December 31,2011 are as follows: Accounts receivable from the sale of merchandise on December 16 to Carter Corporation. Billing is for 150,000 foreign currencies and due , January 15,2012 P103,500 Accounts payable to Furrows Corporation for merchandise received December 2 and payable on January 20, 2012. Billing is for 275,000 foreign currencies P195,250 Exchange rates on selected dated are as follows: December 31,2011 P0.680 January 15,2012 0.675 January 20,2012 0.685 The net exchange gain (loss) from the two transactions that will be included in the income statement for: Dayag 2013 2011 2012 2011 2012 a. 8,250 (625) c. 6,750 (2,075) b. 9,750 (1,375) d. (6,750) 2,075 70. Hunt Co. purchased merchandise for £300,000 from a vendorjn London on November 30, 2011. Payment in British pounds was due on January 30, 2012. The exchange rates to purchase one pound were as follow: November 30, December 31 January 30, 2011 2011 2012 Spot-rate P71.11 P71.00 P71.50 30-day rate 75.00 73.00 72.00 60-day rate 74.50 75.00 75.12 In its income statement, what amount should Hunt report as foreign exchange transaction gain (loss)? Dayag 2013 2011 2012 2011 2012 A. 33,000 (150,000) C. 600,000 300,000 B. (33,000) 150,000 D. (150,000) ( 36,000)

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Foreign Currency Transactions 71. On July 1, 2011, Asser Company borrowed 1,680,000 local currency units (LCU) from a foreign lender, evidenced by an interest bearing note due on July 1, 2012, which is denominated in the currency of the lender. The Philippine peso equivalent of the note principal was as follows: Date Amount 7/1/2011 (date borrowed) P210,000 12/31/2011 (Asser's year end) 240,000 7/1/2012 (date repaid) 280,000 In its income statement, what amount should Asser include as a foreign exchange gain or (loss)? Dayag 2013 2011 2012 2011 2012 a. 30,000 40,000 c. -0(70,000) b. (30,000) (40,000) d. (30,000) 0 72. On September 1, 2011, Pedro & Co., a Philippine Corporation, sold merchandise to a foreign firm for 250,000 francs. Terms of the sale require payment in francs on February 1, 2012. On September 1, 2011, the spot exchange rate was P6.27 per franc. At December 31, 2011, Pedro's year end, the spot rate was P6.00, but the rate increased to P6.30 by February 1, 2012, when payment was received. How much should Pedro report as foreign exchange transaction gain or (loss) in its income statement? 2011 20/2 2011 2012 a. 67,500 (75,000) c. 0 7,500 b. (67,500) 75,000 d. 7,500 0 Dayag 2013 73. Juan, a Philippine Corporation, bought inventory items from a supplier in Germany on November 5, 2011 for 100,000 marks, when the spot rate was P21. At Juan's December 31, 2011, year end, the spot rate was P20.5. On January 15,2012, Juan bought 100,000 marks at the spot rate of P20.90 and paid the invoice. How much should Juan report in its income statements for 2011 and 2012 as foreign exchange transaction gain or (loss)? 2011 2012 2011 2012 A. (50,000) 40,000 c. 0 10,000 B. 50,000 (40,000) d. 10,000 0 Dayag 2013

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Advance Accounting 74. Lindy Corp. bought inventory items from a foreign supplier in Japan on November 15, 2009 for 100,000 yen, when the spot rate was P0.4295. At Lindy's December 31, 2009, year end, the spot rate was P0.4245. On January 15, 2010, Lindy bought 100,000 yen at the spot rate of P0.4345 and paid the invoice. How much should Lindy report in its income statements for 2009 and 2010 as foreign exchange transaction gain or loss? 2009 2010 A. 500 ( 1,000) B. 0 (500) C. (500) 0 D. (1,000) 500 Punzalan 2014 Use the following data in answering Nos. 16 and 17. Guerrero 2013 Makati Corporation imports merchandise from some Japanese companies and exports its own products to other Japanese companies. The unadjusted accounts denominated in Japanese Yen at December 31, 2012, are as follows: Accounts receivable from the sale of merchandise on December 16 to Narita Company. Billing is for 150,000 Japanese Yen and due January 15,2013 P103,500 Accounts payable to Akito Company for merchandise received on December 2 and payable on January 30, 2013, billing is for 275,000 Japanese Yen P195,250 Exchange rates on selected dates are as follows: December 31, 2012 P0.68 January 15,2013 P0.675 January 30,2013 P0.685 75. What is the net forex gain or loss from the two transactions to be reported in Makati's statement of comprehensive income for 2012? a. P1,500 loss c. P6,750 gain b. P8,250 gain d. P6,750 loss 76. What is the net forex gain or loss from the settlement of the two transactions to be reported in Makati's 2013 statement of comprehensive income? a. P2,125 loss c. P2,075 gain b. P2,125 gain d. P2,075 loss 77. Rustan, Inc. a Philippine company, bought inventory items from a supplier in Singapore on November 5, 2012 for 50,000 Sing dollar, when the spot rate was P33.60. On December 31, 2012, the spot rate was P33.10. On January 15, 2013 Rustan bought 50,000 Sing dollar at the spot rate of P33.20 and paid the invoice.

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Foreign Currency Transactions How much should Rustan report in its statements of comprehensive income for 2012 and 2013 as forex gain or (loss)? 2012 2013 a. P25,000 P(5,000) b. P(2 5,000) P0 c. P0 P(2 5,000) d. PO P0 Guerrero 2013 Realized Foreign Exchange Gain/Loss Sales/Accounts Receivable 78. Halika Trading sells goods to Busit Company, Bangkok, for Baht 1,000,000. The exchange rate at this time is P0.9875/Baht. Busit pays 20 days later when the prevailing exchange is PI: Baht 1. By reason of exchange fluctuation, how much do Halika and Busit stand to gain or lose if the agreed currency of invoice is Thailand Baht? a. Halika: P0 ; Busit: P12,500 loss b. Halika: P 12,500 loss ; Busit: P0 c. Halika: P 12,500 gain ; Busit: P0 d. Halika: P0 ; Busit: 12,500 gain Dayag 2013 79. Manila Pit Shop sells goods to Action Hobbies of Hongkong for HK$30,000. The exchange rate at this time is P7.60 for 1HK$. Action Hobbies pays 20 days later when the prevailing exchange rate is P7.80 for 1HK$. Because of exchange rate fluctuation, how much do Manila Pit Shop and Action Hobbies of Hongkong stand to gain or lose if the transaction is denominated in Hongkong dollar. Manila Pit Shop Action Hobbies a. P6,000 gain P-0b. P6,000 loss P-0c. P-0P6,000 loss d. P-0P6,000 gain Guerrero 2013 Bank to Bank Transaction Fixed Assets & Creditor 80. Hizon Holdings, Inc. is a parent company of a group of companies, but also does its own trading. It bought a fixed asset for $36,000 on November 1, 2011 when the exchange rate was $1.00 = P23.00. At December 31,2011, the company's year-end, the supplier of the fixed asset has not been paid and the exchange rate at that time was $1.00 = P25.00. Foreign Currency Transactions – MCQ Problems

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Advance Accounting The company has not taken out a forward exchange contract for this payment as a. hedge against adverse exchange rate movements. On the balance sheet of Hizon Holdings, Inc., what will be the values for the fixed asset and the creditor who was unpaid? Fixed Asset Creditor a. P900,000 P900,000 b. P900,000 P828,000 c. P828,000 P828,000 d. P828,0O0 P900,000 Dayag 2013 81. City Bank of Manila (CBM) commenced correspondence relationship with Chicago Bank of USA in May, 2011. The following are their transactions during the month: Debits: May 01 Remittance, cable = $1,000 (at P56.30/US$) May 15 Remittance, cable = $5,000 (at P56.35/US$) Credits: May 10 Demand draft = $1,000 (at P56.30/US$) May 25 Sight draft = $ 500 (at P56.45/US$) If the prevailing exchange rate on May 31, 2011 was P56.75/US$, the respective balances, on this date, for CBM and Chicago Bank are: Dayag 2013 a. CBM:P170,725 Chicago: $1,500 c. CBM: P255,375Chicago:$4,500 b. CBM:P253,325 Chicago: $4,500 d. CMB: P293,050 Chicago: $6,000 82. Hizon Holdings, Inc. is a parent company of a group of companies, but also does its own trading. It bought a fixed assets for $36,000 on November 1, 2009 when the exchange rate was $1.00 = P23.00. At December 31, 2009, the company's year-end, the supplier of the fixed asset has not been paid and the exchange rate at that time was $1.00 = P25.00. The company has not taken out forward exchange contract for this payment as a hedge against adverse exchange rate movements. On the balance sheet of Hizon Holdings, Inc., what will be the values for the fixed asset and the creditor who was unpaid? Fixed asset Creditor A. 900,000 900,000 B. 900,000 828,000 C. 828,000 828,000 D. 828,000 900,000 Punzalan 2014

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Foreign Currency Transactions 83. Manila Holdings, Inc., is the parent company of a group of companies who also does its own trading. It bought equipment from a US supplier for $10,000 on November 2, 2013 and opened the corresponding letter of credit (LC) when the exchange rate was P55.00 to $1. On December 31, 2013 which is the company's year-end the US supplier has not been paid and the exchange rate at that time was P57.00to$l. On the statement of financial position of Manila Holdings, Inc., on December 31, 2013, what will be the year-end balances of the equipment and the accounts payable accounts. Equipment Accounts Payable a. P570,000 P570,000 b. P570,000 P550,000 c. P5 50,000 P550,000 d. P 5 50,000 P 570,000 Guerrero 2013 Accounting Entries 84. Cebu Company sold merchandise to a US customer for $ 10,000. On June 1, 2012 after confirmation of a letter of credit, Cebu Company ship the goods to U.S. when the direct exchange rate is P56.50. On December 31,2012, the statement of financial position of Cebu Company shows a receivable from US customer in the amount of P574,000. On January 10,2013 Cebu Company collected the amount of the LC from the bank, when the exchange rate is P56.80. What adjusting entry was made on December 31, 2012? a. Forex loss 9,000 Accounts receivable b. Accounts receivable 7,000 Forex gain c. Accounts receivable 7,000 Forex gain d. Accounts receivable 9,000 Forex gain

Foreign Currency Transactions – MCQ Problems

Guerrero 2013 9,000 7,000 7,000 9,000

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Advance Accounting 85. The Bacolod Company has a receivable from a customer in Hongkong which is payable in Hongkong dollar. The amount receivable for HK$ 100,000, has been converted into P750,000 on Bacolod's December 31,2012 statement of financial position. On January 1, 2013, the receivable was collected in full when the exchange rate was HK$1 to P7.70. What journal entry should Bacolod make to record the collection of this receivable on January 15, 2013? Guerrero 2013 a. Cash 770,000 Accounts receivable 770,000 b. Cash 730,000 Forex loss 20,000 Accounts receivable 750,000 c. Cash 770,000 Deferred forex loss 15,000 Accounts receivable 785,000 d. Cash 770,000 Accounts receivable 750,000 Forex gain 20,000 Comprehensive 86. An entity has a subsidiary that operates in a foreign country. The subsidiary sold goods to the parent for 2.1 million baht. The cost of the goods to the subsidiary was 1.2 million baht. The goods were recorded by the entity at P1.05 million (2 baht = P1) and were all unsold at the year-end of December 31,2011. The exchange rate at that date was 1.5 baht = P1. What is the value of the intragroup profit that will be eliminated at December 31,2011? a. 205,000 c. 450,000 b. 350,000 d. 600,000 Dayag 2013 87. Shore Co. records its transactions in pesos. A sale of goods resulted in a receivable denominated in Japanese yen, and a purchase of goods resulted in a payable denominated in French francs. Shore recorded a foreign exchange transaction gain on collection of the receivable and an exchange transaction loss on settlement of the payable. The exchange rates are expressed as so many units of foreign currency to one peso.

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Foreign Currency Transactions Did the number of foreign currency units exchangeable for a peso increase or decrease between the contract and settlement dates? Yen Francs exchangeable exchangeable for P1 for P1 a. Increase Increase b. Decrease Decrease c. Decrease Increase d. Increase Decrease Dayag 2013 Questions 1 thru 3 are based on the following: Dayag 2013 88. Suppose the foreign exchange rates are: 1 Singapore dollar = P.7025 1 Cyprus pound = P2.5132 Based on the information given above, the indirect exchange rates for the Singapore dollar and the Cyprus Pound are: a. 1.7655 Singapore dollars and 1.4235 Cyprus pounds respectively. b. 0.2975 Singapore dollars and 1.5132 Cyprus pounds respectively. c. 2.1622 Singapore dollars and 0.4625 Cyprus pounds respectively. d. 1.4235 Singapore dollars and 0.3979 Cyprus pounds respectively. 89. Using the same information in No. 88, how many Philippine pesos must be paid for a purchase of citrus fruits costing 10,000 Cyprus pounds? a. P25,132 c. P3,979 b. P15,132 d. P35,775 90. Using the same information in No. 88, how many Singapore dollars are required to purchase goods costing 10,000 Philippines pesos? a. 7,025 c. 17,655 b. 14,235 d. 2,975 Questions 1 thru 3 are based on the following: Dayag 2013 91. AA On December 26, 2011, the vice-president of marketing of Travel Corp. was given a P6,000 travel advance for a 10-dayirip to Thailand. On that date, the vice-president converted the P6,000 into 12,000 Thailand Baht. During this 10-day trip, the baht steadily weakened against the peso. The exchange rate at December 31, 2011 was 1 baht equals P.48. On January 5,2012, the vice-president returned and submitted to the company cashier 1,100 baht and receipt for 10,900 baht that he had spent. On this date, the exchange rate was 1 baht equals P.42. Of the 10,900 baht spent during the trip, 5,700 baht had been spent by December 31,2011. Foreign Currency Transactions – MCQ Problems

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Advance Accounting The foreign exchange gain or loss on December 31, 2011 amounted to: a. 0 c. 126 b. 57 d. 183 92. Using the same information in No. 92, the foreign exchange gain or loss on January 5, 2012, the settlement of remaining travel advance: a. 66 c. 183 b. 156 d. 222 93. If P51.50 can be exchange for 1 dollar, the direct and indirect exchange rate quotations are: a. 51.50 and$ 1, respectively c. 1 and$51.50, respectively b. 51.50 and$.02, respectively d. 1 and$ .02, respectively Questions 1 & 2 are based on the following: Dayag 2013 94. The accounts of llocano International, a Philippine corporation, show P81,300 accounts receivable and P38,900 accounts payable at December 31,2011, before adjusting entries are made. In analyzing the balances reveals the following: Accounts Receivable: Accounts receivable in Phil, pesos P28,500 Receivable denominated in 20,000 foreign currency 111,800 Receivable denominated in 25,000 foreign currency 241,000 Total P81,300 Accounts Payable: Payable denominated in Phil, pesos P 6,850 Payable denominated in 10,000 foreign currency 3 7,600 Payable denominated in 15,000 foreign currency 2 24,450 Total P38,900 Current exchange rates for foreign currency 1, foreign currency 2, and foreign currency 3 at December31,2011 are P.66, P1.65and P.70, respectively. Determine the net exchange gain or loss that should be reflected in llocano's income statement for 2011 from year-end exchange adjustments. a. 1,950 c. 1,650 b. (1,950) d. (300) 95. Using the same information in No. 95, determine the amounts at which the accounts receivable and accounts payable should be included in llocano's December 31,2011: Accounts Accounts Accounts Accounts Receivable Payable Receivable Payable a. 79,332 64,185 c. 134,145 27,230 b. 82,950 38,600 d. 53,658 38,600

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Foreign Currency Transactions 96. An entity purchases plant from a foreign supplier for 3 million baht on January 31,2012, when the exchange rate was 2 baht = PI. At the entity's year-end of March 31,2012, the amount has not been paid. The closing rate was 1.5 baht = PI. The entity's functional currency is the peso. Which of the following statements is correct? Dayag 2013 A. Cost of plant, P2 million, exchange loss P0.5 million, trade payable P1.5 million. B. Cost of plant P1.5 million, exchange loss P0.6 million, trade payable P2 million. C. Cost of plant P1.5 million, exchange loss P0.5 million, trade payable P2 million. D. Cost of plant P2 million, exchange loss P0.5 million, trade payable P2 million Questions 1 & 2 are based on the following: Dayag 2013 97. Brisco Bricks purchases raw material from its foreign supplier, Bolivian Clay, on May 8. Payment of 2,000,000 foreign currency units (FC) is due in 30 days. May 31 is Brisco's fiscal year-end. The pertinent exchange rates were as follows: May8 Spot Rate: P1.25 ' May31 Spot Rate: P1.26 June7 Spot Rate: P1.20 For what amount should Brisco's Accounts Payable be credited on May 8? a. P2,500,000 c. P1,600,000 b. P2,440,000 d. P1,639,340 98. Using the same information in No. 97, how much foreign currency will it cost Brisco to finally pay the payable on June 7? a. P1,666,667 c. P2,520,000 b. P2,440,000 d. P2,400,000 99. An entity purchases plant from a foreign supplier for 3 million baht on January 31, 2011, when the exchange rate was 2 baht = P1. At the entity's year-end of March 31, 2011, the amount has not been paid. The closing rate was 1.5 baht = PI. The entity's functional currency is the peso. Which of the following statements is correct? Dayag 2013 a. Cost of plant P2 million, exchange loss P.5 million, trade payable P1.5 million. b. Cost of plant P1 .5 million, exchange loss P.6 million, trade payable P2 million. c. Cost of plant P1.5 million, exchange loss P.5 million, trade payable P2 million. d. Cost of plant P2 million, exchange loss P.5 million, trade payable P2 million.

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Advance Accounting Questions 1 thru 4 are based on the following: Dayag 2013 100. During June and July 2011, Caltex (which reports on a calendar-year basis and issues quarterly financial statements) had the following transactions with foreign businesses: Billing Exchange Rate Date Nature of Transaction Currency (Direct) Vendor A: 6/15/11 Imported merchandise costing 10,000 euros from French manufacturer. Euros P65 7/15/11 Paid entire amount owe62 Customer A: 6/20/11 Sold merchandise for 20,000 real to a Brazilian retailer Real P23 7/15/11 Received full payment22 On June 30, 2011, the spot exchange rate for euros was P64 and for real was P22.60. What is the foreign exchange gain or loss on June 30,2011 arising from the French manufacturer? a. 30,000 gain c. 10,000 gain b. 20,000 gain d. 10,000 loss 101. Using the same information in No. 100, what is the foreign exchange gain or loss on July 15, 2011 transaction arising from the French manufacturer? a. 10,000 gain c. 20,000 gain b. 30,000 gain d. 20,000 loss 102. Using the same information in No. 100, what is the foreign exchange gain or loss on June 30, 2011 arising from the Brazilian retailer? a. 20,000 loss c. 8,000 gain b. 12,000 loss d. 8,000 loss 103. Using the same information in No. 100, what is the foreign gain or loss on July 15, 2011 transaction arising from the Brazilian retailer? a. 12,000 loss c. 20,000 loss b. 12,000 gain d. 8,000 loss

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Foreign Currency Transactions Questions 1 thru 6 are based on the following: Dayag 2013 104. During July 2011, Petron Corporation had the following transactions with foreign businesses: Billing Exchange Rate Date Nature of Transaction Currency (Direct) Vendor A: 7/1/11 Imported merchandise costing 100,000 rupees from Pakistan wholesaler Rupee P.82 7/10/11 Paid 40% of amount owed .83 7/31/11 Paid remaining amount owed .78 Customer A: 7/15/11 Sold merchandise for 50,000 pound to Syrian wholesaler Pound* P.95 7/20/11 Received 20% payment .90 7/30/11 Received remaining amount owed.. .91 *Syrian pound. What is the capitalized cost of inventory purchase from the Pakistan wholesaler? a. 0 c. 82,000 b. 78,000 d. 83,000 105. Using the same information in No. 104, what is the foreign exchange gain or loss on July 10, 2011 transaction arising from the Pakistan wholesaler? a. 1,000 loss c. 400 gain b. 1,000 gain d. 400 loss 106. Using the same information in No. 104, what is the foreign exchange gain or loss on July 31, 2011 transaction arising from the Pakistan wholesaler? a. 4,000 gain c. 2,400 loss b. 4,000 loss d. 2,400 gain 107. Using the same information in No. 104, what is the reportable sales amount in the income statement in 2011? a. 38,000 c. 45,500 b. 45,000 d. 47,500 108. Using the same information in No. 104, what is the foreign exchange gain or loss on July 20, 2011 transaction arising from the Syrian wholesaler? a. 500 gain c. 2,500 gain b. 500 loss d. 2,500 loss Foreign Currency Transactions – MCQ Problems

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Advance Accounting 109. Using the same information in No. 104, what is the foreign exchange gain or loss on July 30, 2011 transaction arising from the Syrian wholesaler? a. 1,600 loss c. 2,000 gain b. 1,600 gain d. 2,000 loss Questions 1 thru 3 are based on the following: Dayag 2013 110. On September 3,2011, Connelly placed a non-cancellable purchase order with a Japanese company for a custom-built machine. The contract price was 1,000,000 yens. The machine was delivered on December 23,2011. The invoice was dated November 13, 2011, the shipping date (FOB shipping point). The vendor was paid on January 7, 2012. The spot direct exchange rates for the Japanese yens on the respective dates are as follows: September3, November 13, December23, December31, January 7, 2011 2011 2011 2011 2012 P.20 P.21 P.22 P.23 P.24 What amount is the capitalizable cost of the equipment? a. 200,000 c. 220.000 b. 210,000 d. 230,000 111. What is the reportable foreign exchange gain or loss amount in Connelly's 2011 income statement? a. 10,000 loss c. 30,000 loss b. 20,000 gain d. 20,000 loss 112. What is the reported value of the payable to the vendor at December 31, 2011? a. 200,000 c. 220.000 b. 210,000 d. 230,000 Questions 1 thru 3 are based on the following: Dayag 2013 113. On September 9,2011, Selma Inc. accepted a non-cancellable merchandise sales order from a Japanese firm. The contract price was 100,000 yens. The merchandise was delivered on December 14,2011. The invoice was dated December 11, 2011, the shipping date (FOB shipping point). Full payment was received on January 22, 2012. The spot direct exchange rates for the Japanese yens on the respective dates are as follows: September December 11, December 14, December31, January22, 2011 2011 2011 2011 2012 P.75 P.78 P.77 P.73 P.725 What is the reportable sales amount in the 2011 income statement? a. 73,000 c. 77,000 b. 75,000 d. 78,000

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Foreign Currency Transactions 114. Using the same information in No. 113, what is the reportable foreign exchange gain or loss amount in the 2011 income statement? a. 2,000 gain c. 5,000 loss b. 4,000 loss d. 5,000 gain 115. Using the same information in No.113, what is the reported value of the receivable from the customer at December 31, 2011 ? a. 73,000 c. 77,000 b. 75,000 d. 78,000 116. On October 1, 2009, a local importer contracted to purchase foreign goods requiring payment of 100,000 German marks one month after their receipt at the local importer's business place. Title to the goods passed on the date of shipment on December 1, 2009. On December 31, 2009, the goods were still in transit. The following exchange rates were made available: October 1,2009 P 22.00 December 1,2009 20.00 December 31, 2009 26.00 How should the exchange fluctuation in 2009 be accounted by this local importer? Transaction Translation gain (loss) adjustment A. (400,000) 0 B. 600,000 200,000 C. (600,000) 200,000 D. (600,000) 0 Punzalan 2014 Use the following information in answering Nos. 22 and 23 Guerrero 2013 On December 12, 2013, Davao Import, Inc. entered into a forward exchange contract to purchase 100,000 foreign currencies (FC) in 90 days to hedge a purchase of inventory in November, 2013 payable in March 2014. The relevant exchange rates are as follows: Forward Rate Spot Rate (for March 12, 2014) November 30,2013 P8.70 P8.90 December 12,2013 8.80 9.00 December 31,2013 9.20 9.30 117. At December 31, 2013, what amount of foreign exchange gain (loss) from this forward contract should be reported in the statement of comprehensive income of Davao? a. P(30,000) c. P40,000 b. P30,000 d. P(40,000) Foreign Currency Transactions – MCQ Problems

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Advance Accounting 118. At December 31,2013, what amount of forex gain (loss) should be reported in the statement of comprehensive income from the adjustment of the accounts payable of 100,000 FC. a. P50,000 c. P40,000 b. P(50,000) d. P(40,000) Use the following data in answering Nos. 119 and 120. Guerrero 2013 The accounts of Palawan International, a Philippine company, show P813,000 accounts receivable and P3 89,000 accounts payable at December 31, 2013 before adjusting entries are made. An analysis of the balances reveals the following: Accounts receivable Receivable denominated in Philippine peso P285,000 Receivable denominated in 200,000 Japanese yen 118,000 Receivable denominated in 250,000 Thailand baht 410,000 Total P813,000 Accounts payable Payable denominated in Philippine peso P 68,500 Payable denominated in 10,000 Hongkong dollar 76,000 Payable denominated in 150,000 Thailand baht 244,500 Total P3 89,000 Current exchange rates on December 31, 2013 are: Japanese yen P .66 Thailand baht P1.65 Hongkong dollars P7.00 119. What is the net exchange gain or loss that should be reflected in Palawan's statement of comprehensive income for 2013 after the year end adjustments? a. P19,000 gain c. P16,500 loss b. P19,500 loss d. P19,500 gain 120. What is the balance of accounts receivable and payable that should be reported in Palawan's December 31,2013 statement of financial position? Accounts Accounts Receivable Payable a. P829,500 P386,000 b. P3 86,000 P829,500 c. P813,000 P389,000 d. P389,000 P813,000

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Foreign Currency Transactions FORWARD EXCHANGE CONTRACT Merchandise 121. On July 1, 2011, Magnolia Company purchases 1,000 pounds of Swiss chocolate for 50,000 Swiss francs, payable in 60 days. On July 1, a Swiss franc is worth P27.29; by August 30, the day of payment, the Swiss franc is worth P27.00. The 60-day forward rate on July 1 is 1 Swiss franc = P28.00. Magnolia Company should record the cost of the chocolate as: a. 1,350,000 c. 1,400,000 b. 1,364,500 d. 1,832,000 Dayag 2013 Fixed Assets 122. On May 1, 2011, the Manila Museum purchase an original Picasso's of drawing for 100,000 French francs, payable in 30 days. On May 1, the spot rate is P6.26 to 1 French franc and the 30 day forward rate is P6.50 per French franc. On May 30, when the bill is paid, the spot rate is P6.70 per French franc. The cost of the drawing should be recorded at: a. 650,000 c. 626,000 b. 670,000 d. 15,974 Dayag 2013 Transaction Gain/Loss Transaction Loss 123. On November 1, 2009, Manila Bay Corp. purchased inventory from a foreign vendor payable on February 1, 2010 in the amount of 100,000 foreign currency. On the same date, Manila Bay purchases a 90-day forward contract to buy 100,000 foreign currency at a forward rate of one foreign currency = P40.60. The following spot rates are made available: Spot rate/1 FC Nov. 1,2009 P 40.00 Dec. 31,2009 40.20 Feb 1,2010 40.50 What is the total exchange gain (loss) on foreign currency transaction? a. (50,000) c. (20,000) b. 50,000 d. 20,000 Punzalan 2014 124. On September 1, 2009, Brady Corp. entered into a foreign exchange contract for speculative purpose by purchasing 50,000 deutsche marks for delivery in 60 days. The rates to exchange P1 for one deutsche mark follow: Sept. 1,2009 Sept. 30, 2009 Spot rate 22.75 ' 22.70 30-day forward rate 22.73 22.72 60-day forward rate 22.74 22.73 Foreign Currency Transactions – MCQ Problems

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Advance Accounting In its September 30, 2009 income statement, what amount should Brady report as foreign exchange transaction loss? a. 2,500 c. 1,000 b. 1,500 d. 500 Punzalan 2014 125. On April 4, 2013, Malate Export, Inc. sold merchandise to Malaysia for 10,000 Ringgit. Payment is due on August 2,2013. Also on April 4,2013, Malate entered into a forward exchange contract to sell 10,000 Ringgit on August 2, 2013. Exchange rates for Ringgit are: 4/4/2013 6/30/2013 8/2/2013 Spot rate P14.80 P14,84 P14,82 Forward rate 14.77 14.83 14.82 What amount of forex gain (loss) from this forward contract should be include in Malate's statement of comprehensive income on June 30, 2013? a. P(6,000) c. P(4,000) b. P 6,000 d. P 4,000 Guerrero 2013 Transaction Gain 126. On December 12, 2009, Imp Co. entered into forward exchange contract to purchase 100,000 local currency units (LCU) in ninety days to hedge a commitment to purchase equipment being manufactured to Imp's specifications. The expected delivery date is March 2010 at which time settlement is due to the manufacturer. The hedge qualifies as a fair value hedge. The relevant exchange rates are as follows: Forward rate Spot rate (for March 12,2010) November 30,2009 P0.87 P0.89 December 12,2009 0.88 0.90 December 31,2009 0.92 0.93 At December 31, 2009, what amount of foreign currency transaction gain from this forward contract should Imp include in net income? a. 0 c. 5,000 b. 3,000 d. 10,000 Punzalan 2014 127. On October 17,2013, Cebu Company took delivery from a Thailand Company an inventory costing 100,000 Baht. Payment is due on January 15,2014. On the same date, Cebu entered into a forward contract to buy 100,000 Baht on January 15, 2014. The relevant exchange rates are as follows:

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Foreign Currency Transactions 10/17/2013 12/31/2013 1/15/2014 Spot rate P1.30 P1.42 P1.40 Forward rate 1.36 1.43 1.40 What amount of forex.gain (loss) from this forward contract should Cebu include in net income for 2013? a. P(7,000) c. P 6,000 b. P 7,000 d. P(6,000) Guerrero 2013 Comprehensive Questions 1 & 2 are based on the following: Punzalan 2014 On June 1, 2009, Benguet Manufacturing Corp. received raw materials from a foreign vendor when the spot rate is P40.00. Payment of 100,000 foreign currency is due in 90 days. On the same date, the company acquired a forward contract to buy 120,000 foreign currency in 90 days. The following forward rates per foreign currency were available: June 1,90-day rate P 40.30 June 30, 60-day rate 40.40 July 31, 30-day rate 40.10 128. What is the contract gain (loss) on hedge on an exposed position? a. (40,000) c. (20,000) b. (30,000) d. (10,000) 129. What is the exchange gain (loss) on a speculative contract in June 2009? a. 0 c. 10,000 b. 2,000 d. 12,000 Numbers 20 and 21 are based on the following data: Guerrero 2013 On December 12, 2013, Boracay Company entered into two forward exchange contracts, each to purchase 100,000 Hongkong dollars in 90 days. The relevant exchange rates are as follows: Forward Rate Spot Rate (for March 12, 2012) December 12,2013 P8.80 P9.00 December 31,2013 9.80 9.30 130. Boracay entered into the first forward contract for speculation. At December 31, 2013, what amount of foreign exchange gain (loss) should Boracay in the statement of comprehensive income from this forward contract? a. P0 c. P(30,000) b. P30,0 00 d. P100,000 Foreign Currency Transactions – MCQ Problems

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Advance Accounting 131. Boracay entered into the second forward contract to hedge a commitment to purchase machinery being manufactured to Boracay's specification. At December 31,2013, what amount of net gain or loss on foreign currency transactions should Boracay include in income from this forward contract? a. P0 c. P50,000 b. P30,000 d. P100,000 PURCHASE COMMITMENT Cost of Merchandise 132. Happy Corp. agreed to purchase merchandise from a foreign vendor on November 30, 2009. The goods will arrive on January 31, 2010 and payment of 100,000 foreign currency is due on February 28, 2010. On November 30, 2009, Happy signed an agreement with a foreign exchange broker to buy 100,000 foreign currency on February 28, 2010. Exchange rates to purchase foreign currency are as follows: 11/30/09 12/31/09 1/31/10 2/28/10 Spot P1.65 P1.62 P 1.59 P 1.57 30 day 1.64 1.60 1.59 60 day 1.63 1.56 1.58 1.58 Because of this commitment hedge, Happy Corp. will record the merchandise at what value when it arrives in January? a. 165,000 c. 160,000 b. 164,000 d. 159,000 Punzalan 2014 OPTION CONTRACT Income 133. On June 1, 2013 Jenna Corporation (a Pilipino company) sold pool cues to a customer in Thailand for 100,000 Baht when the spot rate is P1.50 per Baht. The pool cues are to be paid on September 1, 2013. On June 1, Jenna Corporation acquires a three-month option to sell 100,000 Baht. The strike price is PI.50 and the premium is P.05 per unit. On September 1,2013 Jenne receives 100,000 Baht in settlement of the pool cues. The spot rate at that date is P1.43 per Baht. What is the amount that Jenna would report in income as a result of this transactions? a. P145,000 c. P143,000 b. P140,000 d. P150,000 Guerrero 2013

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Foreign Currency Transactions Intrinsic Value 134. On January 2, 2009, Souvenir Co. a manufacturing company in Manila, sold goods to an American company in California, USA for $10,000 when the foreign currency exchange rate is P50.00 for a dollar. The goods are to be paid on March 31, 2009. On January 2, 2009, Souvenir Co. acquires a three-month put option to sell $10,000. The strike price is P50.00 and the premium is P5.00. On March 31, 2009, Souvenir receives $10,000 from American company in settlement of the goods sold, when the foreign exchange rate is P48.00 per US dollar. What is the amount that Souvenir would report in the statement of comprehensive income as a result of this transaction? a. 200,000 c. 480,000 b. 450,000 d. 500,000 Punzalan 2014 Call Option Receive/Pay 135. On January 2, 2009, Hershey Co. enters into a call option contract with an investment company. This contract gives Hershey the option to purchase 10,000 shares of Petrol Co. stock at PI00 per share. The option expires on May 31, 2009. Petrol shares are traded at PI00 per share on January 2, 2009 at which time Hershey pays PI0,000 for the call option. The price per share of Petrol stock is P120 on May 31, 2009, and the time value of the option has not changed. If the interest rate on January 1, 2010 is 8%, what amount would Canary receive (pay) from (to) Crown? a. (100,000) b. 100,000 c. (50,000) d. 50,000 In the settlement of the option contract, Hershey will Punzalan 2014 Comprehensive Items 40 to 42 are based on the following data: Guerrero 2013 On July 1, 2012, Pedro Company purchased 1,000 shares of Jenny Co. common stock at a cost of P150 per share per share and classified it as an available for sale security. On October 1, Pedro Company purchased an at-the-money put option on Jenny at a premium of P35,000 with a strike price of P250 per share and an expiration date of April 2013. Pedro Company specifies that only the intrinsic value of the option is to be used to measure effectiveness. Thus, the time value decreases of the put will be charged against the income of the period, and not offset against the change in value of the underlying, hedged item. The following shows the fair value of the hedged item and the hedging instrument.

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Advance Accounting 10/1/012. Hedged item: Jenny share price Number of shares Hedging instrument Put option (1,000 shares): Intrinsic value Time value Fair value

P

250 1,000

P

0 35,000 P35,000

12/31/012 P

220 1,000

P30,000 21,500 P51,500

3/3/013 P

200 1,000

P50,000 5,300 P55,300

4/17/013 P

200 1,000

P50,000 0 P50,000

136. On December 31,2013, how much is the value of the put option to be presented on the statement of financial position? a. P51,500 c. P3 0,000 b. P35,000 d. P25,000 137. What is the cumulative effect on retained earnings of the hedge and sale? a. P65,000 c. P 50,000 b. P 60,000 d. P55,000 138. What is the entry to record the exercise of the put option on April 17, 2013? a. Cash 250,000 Put option b. Cash 250,000 Available-for-sale securities Put option Gain on sale of securities c. Cash 200,000 Available-for-sale securities Put option Gain on sale of securities d. Cash 200,000 Put option Available-for-sale securities Gain on sale of securities

Foreign Currency Transactions – MCQ Problems

250,000 100,000 50,000 100,000 50,000 50,000 100,000 50,000 100,000 50,000

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Foreign Currency Transactions Items 1 to 3 are based on the following data: Guerrero 2013 JenJen Company sold computer printer ink cartridges to a Pakistan computer parts store on March 10. The sales price of 100,000 Rupee (R) will be received in 30 days. JenJen anticipates that the exchange rate of the Rupee to Philippine peso will decrease in 30 days. Therefore, JenJen decides to purchase a put option on 100,000 Rupee at a strike price of P.73, paying a premium of P.005 per unit. The following are the relevant data for the term of the option: Spot Rates: March 10 P.73 March 31 P.727 April 9 P.723 Fair value of the option: March 31 P600 April 9 P700 139. On April 9, what is the entry to record the settlement of the accounts receivable from the Pakistan customer? a. Cash/Foreign currency 72,300 Foreign exchange loss 500 Accounts receivable (R) 72,800 b. Cash/foreign currency 72,100 Foreign exchange loss 900 Accounts receivable (R) 73,000 c. Cash/foreign currency 73,000 Foreign exchange gain 900 Accounts receivable (R) 72,100 d. Cash/Foreign currency 73,000 Foreign exchange gain 200 Accounts receivable (R) 72,800 140. What is the entry to record the exercise of the put option on April 9? a. Cash 73,000 Foreign currency 72,300 Put options 700 b. Cash 73,000 Put options 500 Foreign currency 72,500 c. Cash 73,000 Foreign currency 73,000 d. Cash 72,100 Put options 500 Foreign currency 71,500

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Advance Accounting 141. What is the impact on the net income for the first quarter of 2013? a. P72,500 c. P72,800 b. P72,300 d. P72,100 TRANSLATION OF FINANCIAL STATEMENTS Consolidated Balance Sheet Assets 142. A foreign subsidiary of Decker Corporation has certain balance sheet accounts at December 31, 2011. Information relating to these accounts in Philippine pesos is as follows:

Marketable securities, at cost... Inventories, at average cost Patents

Translated at Current rates Historical rates P 65,000 P 75,000 500,000 550,000 80,000 85,000 P645,000 P710,000

What total amount should be included in Decker's December 31, 2011, consolidated balance sheet for the above accounts if the subsidiary's foreign operation operates independently or foreign operations is not integral to the parent's operations? a. P710,000 c. P660,000 b. P700,000 d. P645,000 Dayag 2013 143. Certain balance sheet accounts of a foreign subsidiary of Rowan, Inc., at December 31,2011, have been translated into Philippine pesos as follows:

Note receivable, long-term Prepaid rent Patent

Translated at Current rates Historical rates P240,000 P200,000 85,000 80,000 150,000 170,000 P475,000 P450,000

The subsidiary's functional currency is the currency of the country in which it is located. What total amount should be included in Rowan's December 31,2011 consolidated balance sheet for the above account? a. 450,000 c. 475,000 b. 455,000 d. 495,000 Dayag 2013

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Foreign Currency Transactions 144. Certain accounts of a foreign subsidiary in Japan of Manila Corporation at December 31,2013 have been translated into Philippine pesos as follows: Translated at Current rates Historical rates Accounts receivable P120,000 P100,000 Prepaid expenses 55,000 50,000 Property and equipment (net) 275,000 285,000 What total amount should be included in Manila's December 31,2013 consolidated statement of financial position for the above translated amounts. a. P450,000 c. P 440,000 b. P425,000 d. P 450,000 Guerrero 2013 Inventory 145. On January 1,2012, the Makati Corporation established a branch in Hongkong. On February 15,2012, the branch purchased inventory for HK$100,000. On December 31,2013, HK$25,000 of the inventory purchased on February 15,2013 made up the entire inventory. The exchange rates were as follows: January 1 to June 30, 2013 HK$0.138 = P1 December 31, 2013 HK$0.133 = P1 The December 31, 2013 inventory balance for Makati's branch should be translated into Philippine pesos in the amount of: a. P181,159.42 c. P3,450.00 b. P 187,969.93 d. P3,325.00 Guerrero 2013 Goodwill 146. The Pinoy Company acquired a foreign subsidiary (Taiwan) on August 15, 2012. Goodwill arising on the acquisition was Nt Dollar (Taiwanese currency) 175,000. Consolidated financial statements are prepared at the year end of December 31, 2012 requiring the translation of all foreign operations' results into the presentation currency of peso. The following rates of exchange have been identified: Rate at August 15, 2012 Nt Dollar 1.321 : P1 Rate at December 31, 2012 Nt Dollar 1.298 : 01 Average rate for the year ended December 31, 2012 Nt Dollar 1.302 : P1 Averate rate for the period from Auguj M 5 to December 31, 2012 Nt Dollar 1.292: P1 According to PAS 21 [The effects of changes foreign exchange rates), at what amount should the goodwill be measured in the consolidated statement of financial position? a. P134,409 c. P134,823 b. P135,449 d. P312,449 Dayag 2013 Foreign Currency Transactions – MCQ Problems

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Advance Accounting 147. An entity acquired all the share capital of a foreign entity at a consideration of 9 million baht on June 30, 2012. The fair value of the net assets of the foreign entity at that date was 6 million baht. The functional currency of ] the entity is the peso, The financial year-end of the entity is December 31, 2012. The exchange rates at June 30, 2012, and December 31,2012, were 1.5 baht = PI and 2 baht = PI respectively. What figure for goodwill should be included in the financial statements for the year ended December 31,2012? a. P2 million c. P1.5 million b. 3 million baht d. P3 million Dayag 2013 148. The Will Co. acquired a foreign subsidiary on August 15, 2009. Goodwill arising on the acquisition was PI75,000. Consolidated financial statements are prepared at the year end of December 31, 2009 requiring the translation of all foreign operations' results into presentation currency of Philippine pesos. The following rates of exchange have been identified: August 15, 2009 1.321 LCU = P1.00 December 31, 2009 1.298 LCU = P1.00 Average rate: year ended December 31, 2009 1.302 LCU = PI.00 Average rate: from August 15 to December 31 1.292 LCU = P1.00 According to IAS 21, The Effects of Changes in Foreign Exchange Rates, at what amount should the goodwill be measured in the consolidated statement of financial position? a. 134,409 c. 134,823 b. 135,449 d. 312,475 Punzalan 2014 Trade Payable 149. The Witley Company has the peso as its functional currency. On October 16,2012 Witley ordered some inventory from a foreign supplier and agreed a purchase price of 160,000 yens. The inventory was received on November 15,2012. On December 31, 2012 the inventory remained on hand and the trade payable balance for the inventory purchase remained outstanding. The supplier was paid on January 27,2013 and the inventory was sold on January 31,2011. The following information about exchange rates is available: October 16,2012 P1 = 2.60 yens November 15,2012 P1 =2.50 yens December 31,2012 P1 = 2.40 yens January 27,2013 P1 =2.25 yens According to PAS 21 (The effect of changes in foreign exchange rates), at what amount should the trade payable balance due to the supplier be presented in the statement of financial position of Witley on December 31, 2012?. a. P61,538 c. P66,667 b. P64,000 d. P71,111 Dayag 2013

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Foreign Currency Transactions Dividends 150. An entity has a subsidiary that operates in a foreign country. The subsidiary issued a legal notice of a dividend to the parent of 2.4 million baht, and this was recorded in the parent entity's financial statements. The exchange rate at that date was 2 baht = PI. The functional currency of the entity is the peso. At the date of receipt of the dividend the exchange rate had moved to 3 baht = P1. The exchange difference arising on the dividend would be treated in which way in the financial statements? a. No exchange difference will arise as it will be eliminated on consolidation. b. An exchange difference of P400,000 will be taken to equity. c. An exchange difference of P400,000 will be taken to the parent entity's income statement and the group income statement. d. An exchange difference of P400,000 will be taken to the parent entity's income statement only. Dayag 2013 Fair Value Adjustments 151. On September 1, 2009, Neptune Co. acquires a foreign subsidiary. The fair value of the subsidiary's assets was the same as their carrying amount except for land where the fair value was P50,000 greater than carrying amount. This fair value adjustment has not been recognized in the separate financial statements of the subsidiary. Consolidated financial statements arc prepared at the end of the year December 31, 2009 requiring the translation of ail foreign operations" result into presentation currency of Philippine pesos. The following exchange rates have been determined: September 1.2000 P 1.62 December 31. 2009 1.56 Average rate for the year ended December 31. 2009 1.60 Average rate from September 1, 2008 to December 31. 2009 1.58 According to IAS 21. what fair value adjustment is required to the carrying amount of land m the consolidated balance sheet? a. 30.864 c. 31.250 b. 32.051 d. 31.646 Punzalan 2014 152. The Pinay Company acquired The Kanchengjunga Company (Taiwan currency), a foreign subsidiary, on September 10,2012. The fair value of the assets of Kanchengjunga was the same as their carrying amount except for land where the fair value was Nt dollar 50,000 greater than carrying amount. This fair value adjustment has not been recognized in the separate financial statements of Kanchengjunga. Consolidated fianncial statements are prepared at the year end of December 31,2012 requiring the translation of all foreign operations' results into the presentation currency of peso. Foreign Currency Transactions – MCQ Problems

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Advance Accounting The following rates of exchange have been identified: Rate at 10 September 2012 Nt Dollar 1.62 : P1 Rate at 31 December 2012 Nt Dollar 1.56 : P1 Average rate for the year ended December 31,2012 Nt Dollar 1.60: PI Average rate for the period from 10 September to December 31,2012 NtDolalr 1.58: PI According to PAS 21 (The effects of changes in foreign exchange rates), What fair value adjustment is required to the carrying amount of land in the consolidated statement of financial position? a. P30,864 c. P31,250 b. P32,051 d. P31,646 Dayag 2013 153. An entity acquired 60% of the share capital of a foreign entity on June 30, 2012. The fair value of the net assets of the foreign entity at that date was 6 million baht. This value was 1.2 million higher than the carrying amount of the net assets of the foerign entity. The excess was due to the increase in value of non-depreciable land. The functional currency of the entity is the peso. The financial year-end of the entity is December 31,2012. The exchange rates at June 30, 2012, and December 31, 2012, were .5 baht = PI and 2 baht = P1, respectively. What figure for the fair value adjustments should be included in the group financial statements for the year ended December 31,2012? a. P600,000 c. P2 million b. P800,000 d. P3 million Dayag 2013 Translation Adjustment Credit Adjustment 154. Pedro Corporation, a Philippine Company starts a subsidiary in New Zealand, the subsidiary had the NZ Dollar as its functional currency. On January 1,2013, Pedro acquired all of the subsidiary's common stock for 20,000 NZ Dollar. On April 1, 2013, the subsidiary purchased inventory for 20,000 NZ Dollar, with payment made on May 1, 2013. This inventory is sold on August 1, 2013 for 30,000 NZ Dollar, which is collected on October 1, 2013. Currency exchange rates 1 NZ Dollar for 2013 are as follows: January 1 PI 5 April 1 P17 May 1 P18 August 1 P19 October 1 P20 December 31 P21 What Foreign Currency Translation Adjustment will be reported in preparing consolidated financial statements on December 31,2013? a. P40,000 c. P140,000 b. P 60,000 d. P180,000 Guerrero 201

Foreign Currency Transactions – MCQ Problems

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Foreign Currency Transactions Revaluation Reserve & Retained Earnings 155. The following equity relates to an entity operating in a hyperinflationary economy: Before PAS 29 100 20 30 150

Share capital Revaluation reserve Retained earnings

After Restatement 170 270

What would be the balances on the revaluation reserve and retained earnings after the restatement for PAS 29? a. Revaluation reserve 0, retained earnings 100 b. Revaluation reserve 100, retained earnings 0 c. Revaluation reserve 20, retained earnings 80 d. Revaluation reserve 70, retained earnings 30 Dayag 2013 Inflation Rate 156. Lorikeet Corporation has a foreign subsidiary located in a country experiencing high rates of inflation. Information concerning this country's inflation rate experience is given below. Date January 1,2009 January 1,2010 January 1,2011 January 1,2012

Index 90 120 150 210

Change in index 30 30 60

Annual rate of Inflation 30/100 = 30.00% 30/130 = 23.08% 60/160 = 37.50%

The inflation rate in 2012 that is used in determining if the subsidiary is operating in a highly inflationary economy is: a. None c. 90.58% b. 37.50% d. 133.33% Dayag 2013

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Advance Accounting Other Comprehensive Income 157. On December 31, 2013 a branch in Singapore submitted the following financial statement stated in Singaporean Dollar: Statement of Financial Position Monetary assets $20,000 Non-monetary assets 15,000 Monetary liabilities 18,000 Common stock 12,000 Retained Earnings, 12/31 5,000 Combined Statement of Comprehensive Income and Retained Earnings Sales $27,000 Expenses (including Depreciation $ 1,000) 25,000 Net income 2,000 Retained Earnings, 1/1 3,000 Retained Earnings, 12/31 $ 5,000 The exchange rates are: Current rate P37.00 Historical rate P34.00 Average rate P35.00 Assuming the Retained Earnings on Jan. 1, 2013 of the Singaporean Branch in Philippine Pesos is P128,100. What amount of exchange difference is to be classified as other comprehensive income on December 31, 2013? a. P22,900 c. P12,000 b. P10,000 d. P21,900 Guerrero 2013 158. On December 31,2013 a foreign subsidiary in Hongkong submitted the following condensed statement of financial position stated in foreign currency: Hongkong Dollar Total assets $100,000 Total liabilities 20,000 Common stock 50,000 Retained earnings, 12/31 30,000 The exchange rates are: Current rate P7.40 Historical rate P7.10 Weighted average rate P7.00 Assuming that the retained earnings of the subsidiary on December 31,2013 translated to Philippine Peso is P212,000.

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Foreign Currency Transactions What amount of Cumulative Translation Adjustment is to be reported as other comprehensive income on December 31,2013? a. P25,000 c. P20,000 b. P 2,000 d. P22,000 Guerrero 2013 Consolidated Income Statement Cost of Goods Sold 159. (IASB-SFAS 52 versus IASC-IAS 29). A Phil. Company's foreign subsidiary had these amounts in foreign currency units (FCU) in 2012: Cost of goods sold FCU 10,000,000 Ending inventory 500,000 Beginning inventory 200,000 The average exchange rate during 2012 was P0.80 = FCU 1. The beginning inventory was acquired when the exchanged rate was PI = FCU 1. Ending inventory was acquired when the exchanged rate was P0.75 = FCU 1. The exchange rate at December 31, 2012, was P0.70 = FCU 1. Assuming that the foreign country is highly inflationary, at what amount should the foreign subsidiary's cost of goods sold be reflected in the Philippine peso income statement? a. P7,815,000 c. P8,065,000 b. P8,040,000 d. P8,090,000 Dayag 2013 160. For 2013 a Korean subsidiary reported the following cost of sales: Beginning inventory (FIFO) 40,000 Won Purchases 300,000 Won Ending inventory (FIFO) ( 30,000) Won The exchange rate when the ending inventory items were acquired was P0.0510. The exchange rate for the Korean Won was 0.0490 on January 1 and 0.0540 on December 31. The average rate for the year was 0.0520. What is the cost of sales in Philippine peso that will appear in the translated statement of comprehensive income? a. P16,030 c. P16,740 b. P16,120 d. P15,940 Guerrero 2013

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Advance Accounting Purchases 161. On January 1, 2011, Kiner Company formed a foreign branch. The branch purchased merchandise at a cost of 720,000 local currency units (LCU) on February 15, 2011. The purchase price was equivalent to PI80,000 on this date. The branch's inventory at December'31, 2011 consisted solely of merchandise purchased on February 15, 2011, and amounted to 240,000 LCU. The exchange rate was 6 LCU to PI on December 31, 2011, and the average rate of exchange was 5 LCU to PI for 2011. In Kiner's December 31,2011 balance sheet, the branch inventory balance of 240,000 LCU should be translated into Philippine pesos at (using closing rate method). a. 40,000 c. 60,000 b. 48,000 d. 84,000 Dayag 2013 Depreciation Expense 162. The subsidiary in Japan of Manila Company, a Philippine enterprise has plant assets with a cost of 3,600,000 yen on December 31, 2012. Of this amount, plant assets with a cost of 2,400,000 yen were acquired in 2010 when the exchange rate was 1 yen = P0.625; and plant assets with a cost of 1,200,000 yen were acquired in 2011 when the exchange rate was 1 yen = P0.556.The exchangerateonDecember31,2012was 1 yen = P0.500, and the weighted average rate for 2012 was 1 yen = P0.521. The Japanese subsidiary depreciates plant assets by the straight line method over a 10 years economic life with no residual value. If the subsidiary's foreign operation is integrated with parent's operation, what is the 2012 depreciation expense for the Japanese subsidiary in Philippine peso for the translated income statement? a. P216,720 c. P150,000 b. P207,820 d. P 66,720 Dayag 2013 163. The subsidiary in Japan of Manila Company, a Philippine enterprise has plant assets with a cost of P3,600,000 yen on December 31, 2013. Of this amount, plant assets with a cost of 2,400,000 yen were acquired in 2011 when the exchange rate was 1 yen = P0.625; and plant assets with a cost of 1,200,000 yen were acquired in 2012 when the exchange rate was 1 yen = P0.556. The exchange rate on December 31, 2012 was 1 yen = P0.500, and the weighted average rate for 2013 was 1 yen = P0.521. The Japanese subsidiary depreciates plant assets by the straight line method over a 10 year economic life with no residual value. What is the 2013 depreciation expense for the Japanese subsidiary in Philippine peso for the translated statement of comprehensive income? a. P207,820 c. P150,000 b. P187,560 d. P 66,720 Guerrero 2013

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Foreign Currency Transactions Operating Expenses 164. A wholly-owned foreign subsidiary of a Philippine Company had selected expense accounts stated in local currency units (LCU's) for the fiscal year ended November 30, 2011 as follows: Bad debts expense 60,000 LCU Amortization of patent 40,000 Rent expense , 100,000 The exchange rates for LCU's at various dates were as follows: November 30, 2011 0.20 Average for fiscal year ended, November 30, 2011 ... 0.22 December 31,2011 0.25 If the subsidiary's foreign operation is integrated with parent's operation, what is the peso amount to be included in the translated profit or loss of the Philippine Company's subsidiary for the fiscal year ended November 30, 2012 for the foregoing expense accounts? a. P44,000 c. P42.000 b. P40,000 d. P45,200 Dayag 2013 165. A wholly owned subsidiary of Ward, Inc., has certain expense accounts for the year ended December 31,2011, stated in local currency units (LCU) as follows:

Depreciation of equipment (acquired 1/1/2009) Provision for doubtful accounts Rent

LCU 120,000 80,000 200,000

The exchange rates at various dates are as follows: Peso equivalent of / LCD December 31,2011 P.40 Average for year ended 12/31/2011 .44 January 1,2009 .50 Assume that the LCU is the subsidiary's functional currency. The charges to expense accounts occurred approximately evenly during the year. What total peso amount should be included in Ward's consolidated income statement to reflect these expenses? a. P160,000 c. 176,000 b. P168,000 d. 183,200 Dayag 2013

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Advance Accounting 166. Manila Corp., a wholly-owned subsidiary of Asia, Inc. in California, USA, has certain expense accounts for the year ended December 31, 2009, stated in US dollars as follows: US dollars Selling expenses 360,000 Salaries and wages 600,000 Depreciation expense 240,000 The exchange rates at various dates are as follows: Peso equivalent of 1 US dollar December 31,2009 P 40.00 Average for year ended 12/31/09 35.00 January 1,2009 25.00 Assume that the charges to the expense accounts occurred approximately evenly during the year. What total peso amount should be included in Asia's 2009 consolidated income statement to reflect these expenses? a. 30,000,000 c. 42,000,000 b. 39,000,000 d. 48,000,000 Punzalan 2014 167. A wholly owned foreign subsidiary of Union Co. has certain expense accounts for the year ended December 31, 2009 stated in local currency units (LCU) as follows: LCU Amortisation of patent (related patent acquired on January 1, 2007) 40,000 Provision for doubtful accounts 60,000 Rent 100,000 The exchange rates at various dates are as follows: 1 LCU December 31, 2009 P0.20 Average for year ended December 31, 2009 0.22 January 1, 2007 0.25 Using the generally accepted method of translating the financial statements of foreign operation, what total peso amount should be included in Union's income statement to reflect the above expenses for the year ended December 31, 2009? a. 40,000 c. 44,000 b. 42,000 d. 45,200 Punzalan 2014

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Foreign Currency Transactions Transaction Gain/Loss 168. Post, Inc., had a credit translation adjustment of P30.000 for the year ended December 31,2012. The functional currency of Post's subsidiary is the currency of the country in which it is located. Additionally, Post had a receivable from a foreign customer payable in the local currency of the customer. On December 31, 2011, this receivable for 200,000 local currency units (LCU) was correctly included in Post's balance sheet at PI 10,000. When the receivable was collected on February 15, 2012, the Philippine peso equivalent was PI20,000. In Post's 2012 consolidated income statement, how much should be reported as foreign exchange gain? a. 0 c. 30,000 b. 10,000 d. 40,000 Dayag 2013 169. Connie Corp. had a realized foreign exchange loss of P15,000 for the year ended December 31,2011 and must also determine whether the following items will require year-end adjustment: • Connie had an P8,000 loss .resulting from the translation of the accounts of its wholly owned foreign subsidiary for the year ended December 31,2011. • Connie had an account payable to an unrelated foreign supplier payable in the supplier's local currency. The Philippine peso equivalent of the payable was P64,000 on the October 31, 2011 invoice date, and it was P60.000 on December 31, 2011. The invoice is payable on January 30, 2012. In Connie's 2011 consolidated income statement, what amount should be included as foreign exchange loss? a. 11,000 c. 19,000 b. 15,000 d. 23,000 Dayag 2013 170. An entity acquires a foreign subsidiary on August 15, 2012. The goodwill arising on the acquisition is 400,000 baht. At the date of acquisition the exchange rate into the parent's functional currency is 4 baht: PI.. At the parent entity's year end the exchange rate3 is 4 baht: P1. The exchange loss at year-end amounted to: a. Nil or zero c. 20,000gain b. 20,000loss d. Cannot be determined Dayag 2013 171. Paris Co., a wholly-owned subsidiary of Filipino Corp. is located in France. In 2009, Filipino Corp. borrowed French francs as a partial hedge of its investment in Paris Co. On December 31, 2009, in the preparation of consolidated financial statements, Filipino Corp.'s translation loss on its investment in the subsidiary amounted to P500,000, while its exchange gain on the borrowing amounted to P300,000. Foreign Currency Transactions – MCQ Problems

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Advance Accounting What amount of gain or loss should Filipino Corp. report in consolidated income statement and balance sheet? Income Balance statement sheet A. (500,000) 300,000 B. 300,000 (500,000) C. 0 (200,000) D. (200,000) 0 Punzalan 2014 172. Fay Corp. had a realized foreign exchange loss of PI5,000 for the year ended December 31, 2009 and must also determine whether the following items will require year-end adjustment: • Fay had P8,000 loss resulting from the translation of the accounts of its wholly owned foreign subsidiary for the year ended December 31, 2009. • Fay had an account payable to an unrelated foreign supplier payable in the supplier's local currency. The Philippine peso equivalent of the payable was P64,000 on the October 31, 2009 invoice date, and it was P60,000 on December 31, 2009. The invoice is payable on January 30, 2010. In Fay's 2009 consolidated income statement, what amount should be included as foreign exchange loss? a. 11,000 c. 19,000 b. 15,000 d. 23,000 Punzalan 2014 Net Income 173. The Italy branch of Manila Company reports the following results of its operations for 2013 (in Euro): Sales 10,000 EUR Cost of sale Purchases 1,000 Shipments from Manila 5,000 Inventory, end ( 800) 5,200 Gross profit 4,800 Operating expenses 1,000 Net income 3,800 EUR The relevant exchange rates for EUR for 2013 are: January 1 P69.20 December 31 P69.95 Average rate during the year P69.50 The only shipment from Manila during the year was determined to have a cost to home office of P346,500. The ending inventory was identified to have come from shipments from Manila.

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Foreign Currency Transactions What is the translated comprehensive income of the branch in Italy? a. P264,940 c. P265,810 b. P264,100 d. P262,960

Guerrero 2013

Comprehensive Questions 1 thru 3 are based on the following: Dayag 2013 174. Pinoy Company operates in a hyperinflationary economy. Its balance sheet at December 31, 2011, follows: Property/plant and equipment Inventory Cash Share capital (issued 2007) Retained earnings Noncurrent liabilities Current liabilities

Baht (WO) 900 2,700 350 400 2,350 500 700

The general price index had moved in this way: December 31 2007 100 2008 130 2009 150 2010 240 2011 300 The property, plant and equipment was purchased on December 31,2009, and there is a six months' inventory held. The noncurrent liabilities were a loan raised on March 31,2011. The total assets after adjusting for hyperinflation should be: ('000) a. 1,550 c. 5,850 b. 5,150 d. 11,850 175. Using the same information in No. 86, determine the Retained Earnings on December31,2011:(O00) a. 2,350 c. 2,937 b. 2,750 d. 7,050

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Advance Accounting 176. Using the same information in No. 86, determine the Retained Earnings on December 31, 2011 (in '000's) assuming the following exchange rates: December 31 2007 P1.20 2008 1.24 2009 1.27 2010 1.50 2011 1.75 a. 4,812.50 c. 3,525.00 b. 4,125.00 d. 2,750.00 Questions 1 & 2 are based on the following: Dayag 2013 177. Property was purchased on December 31, 2010 for 20 million baht. The general price index in the country was 60.1 on that date. On December 31, 2012, the general price index had risen to 240.4. If the entity operates in a hyperinflationary economy, what would be the carrying amount in the financial statements of the property after restatement? a. 20 million baht c. 80 million baht b. 1,200.2 million baht d. 4.808 million baht 178. Using the same information in No. 83, the following exchange rates were available on the following dates: PerBaht December 31,2010 P1.20 Average for 2010 1.15 December31,2011 1.22 Average for 2011 1.18 December 31.2012 1.25 Average for 2011 1.23 What would be the translated peso amount in the consolidated balance sheet on December 31,2012? a. 100.0 million c. 97.6 million b. 98.4 million d. 96.0 million

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Foreign Currency Transactions Questions 1 & 2 are based on the following: Dayag 2013 179. Manilow has a year end on December 31, 2012 and uses the peso as its functional currency. On November 29, 2012, Manilow received a loan from a foreign bank for 1,520,000 yens. The proceeds were used to finance, in part, the purchase of a new office block. The loan remained unsettled at the year end. Exchange rates: November 29, 2012: 1 peso = 1.52 yens December 31, 2012:1 peso = 1.66 yens The following amounts should be recorded by Manilow, ignoring interest payable on the loan. On November 29, 2012 the cash advance from the bank amounted to: a. P1,520,000 c. P915,662 b. P1,000,000 d. Cannot be determined 180. The same information in No. 78, the December 31,2012 bank loans payable exchange difference that should be recognized in profit or loss for the period amounted to: a. Nil or zero c. P84,337 loss b. P84,337gain d. P604,338gain Questions 1 & 2 are based on the following: Dayag 2013 181. Ace Corporation starts a subsidiary in a foreign country; the subsidiary's functional currency is the LCU. On January 1, Ace buys all of the subsidiary's common stock for 20,000 foreign currencies (FC). On April 1, the subsidiary purchases inventory for 20,000 FCs with payment made on May 1, and sells this inventory on August 1, for 30,000 FCs, which it collects on October 1. Currency exchange rates for 1 foreign currency are as follows: January 1 April 1 May 1 August 1 October 1 December31

P.15= 1 FC P.17 = 1 P.18 = 1 P.19 = 1 P.20 = 1 P.21 = 1

In preparing consolidated financial statements, what translation adjustment will Ace report at the end of the current year? a. P400 positive (credit) c. P1,400 positive (credit) b. P600 positive (credit) d. P1,800 positive (credit)

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Advance Accounting 182. Using the same information in No. 182, in the translated financial statements, what translation adjustments will Ace report at the end of the current year? a. Current rate method, income statement translated at average exchange rate for the year. b. Current rate method; income statement at exchange rate at the balance sheet date. c. Temporal method d. Monetary/nonmonetary method Questions 1 & 2 are based on the following: Dayag 2013 183. Westmore, Ltd. is a Thailand subsidiary of a Philippine Company. Westmore's functional currency is LCU. The following exchange rates were in effect during 2011: January 1 P1 = .625 baht June30 P1 = .610 baht December31 P1 = .620 baht Weighted average rate for the year P1 = .630 baht Westmore reported sales of 1,500,000 during 2011. What amount (rounded) would have been included for this subsidiary in calculating consolidated sales? a. P2,380,952 c. P2,429,150 b. P2,400,000 d. P2,419,355 184. Using the same information in No. 184, Westmore had accounts receivable of 280,000 on December 31, 2011. What amount (rounded) would have been included for this subsidiary in calculating consolidated accounts receivable? a. P444,444 c. P142,600 b. P451,613 d. P176,400 Questions 1 & 2 are based on the following: Dayag 2013 185. Houston Corporation operates a branch operation in a foreign country. Although this branch deals in foreign currency (FC), the peso is viewed as its functional currency. Thus, a remeasurement is necessary to produce financial information for external reporting purposes. The branch began the year with 100,000 FCs in cash and no other assets or liabilities. However, the branch immediately used 60,000 FCs to acquire equipment. On may 1, it purchased inventory costing 30,000 FCs for cash and it sold on July 1 for 50,000 FCs cash. The branch transferred 10,000 FCs to the parent on October 1 and recorded depreciation on the equipment of 6,000 FCs for the year. Currency exchange rates for 1 FC follow: January 1 P0.16= 1 FC May 1 0.18 = July 1 0.20 = October 1 0.21 = December31 0.22 = Average for the year 0.19 =

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Foreign Currency Transactions What is the remeasurement gain to be recognized in the consolidated income statement? a. P2,100 c. P2,700 b. P2,400 d. P3,000 186. Using the same information in No. 186, which of the following items is not remeasurement using historical exchange rate under the temporal or remeasurement method? a. Accumulated depreciation on equipment b. Cost of goods sold c. Marketable equity securities d. Retained earnings Questions 1 & 2 are based on the following: Dayag 2013 187. Blyke Corporation subsidiary buys marketable equity securities and inventory on April 1, 2011, for 100,000 foreign currencies (FC) each. It pays for both items on June 1, 2011, and they are still on hand at year-end. Inventory is carried as cost under the lower-of-cost-ormarket rule. Currently exchange rates for 1 foreign currency (FC) follow: January 1,2011 P0.15: 1 FC April 1, 2011 0.16: 1 FC June 1,2011 0.17: 1 FC December31,2011 , 0.19: 1 FC Assume that the foreign currency is the subsidiary's functional currency. What balances does a consolidated balance sheet report as of December 31,2011? a. Marketable equity securities = P16,000 and Inventory = P16,000. b. Marketable equity securities = P17,000 and Inventory = P17,000. c. Marketable equity securities = P19,000 and Inventory = P16,000. d. Marketable equity securities = P19,000 and Inventory = P19,000. 188. Using the same information in No. 188 and assume that the peso is the subsidiary's functional currency. What balances does a consolidated balance sheet report as of December 31,2011 ? a. Marketable equity securities = P16,000 and inventory = P16,000. b. Marketable equity securities = P17,000 and inventory = P17,000. c. Marketable equity securities = P19,000 and inventory = P16,000. d. Marketable equity securities = P19,000 and inventory = P19,000. Questions 1 thru 3 are based on the following: Dayag 2013 189. A subsidiary of Salisbury, Inc. located in a foreign country whose functional currency is the foreign currency (which is not the currency of a hyperinflationary economy). The subsidiary acquires inventory on credit on November 1,2011, for 100,000 foreign currencies (FC) that is sold on January 17, 2012 for 130,000 foreign currencies (FC). The subsidiary pays for the inventory on January 31,2010. Foreign Currency Transactions – MCQ Problems

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Advance Accounting Currency exchange rates for 1 foreign currency (FC) are as follows: November 1, 2011 P0.16 = 1 FC December 31,2011 0.17 = January 17,2012 0.18 = January 31,2012 0.19 = Average for 2012 0.20 = What amount does Salisbury's consolidated balance sheet report for this inventory at December 31,2011 ? a. P16,000 c. P18,000 b. P17,000 d. P19,000 190. Using the same information in No. 190, what amount does Salisbury's consolidated income statement report for cost of goods sold for the year ending December 31,2012? a. P16,000 c. P18,000 b. P17,000 d. P19,000 191. Using the same information in No. 190, what amount does Salisbury's consolidated income statement report for cost of goods sold for the year ending December 31,2012 assuming the following current rates for 1 foreign currency (FC): November 1,2011 ..: P0.16= 1 FC December 31,2011 , 0.17 = 1 January 1,2012 0.18= 1 January 31,2012 0.19=1 Average for 2012 0.20 = 1 a. P16,000 c. P19,000 b. P17,000 d. P20,000 Questions 1 & 2 are based on the following: Dayag 2013 192. Certain balance sheet accounts in a foreign subsidiary of Rose Company at December 31, 2012, have been stated into Philippines pesos as follows: Stated at Current Rates Historical Rates Accounts receivable, long term P200,000 P220,000 Accounts receivable, long term 100,000 110,000 Prepaid insurance 50,000 55,000 Goodwill 80,000 85,000 P430,000 P470,000

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Foreign Currency Transactions This subsidiary's functional currency is a foreign currency. What total amount Rose's balance sheet include for the preceding items? a. P430,000 c. P440,000 b. P435,000 d. P450,000 193. Using the same information in No. 193, and the subsidiary's functional currency is peso. What total amount Rose's balance sheet include for the preceding items? a. P430,000 c. P440,000 b. P435,000 d. P450,000

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Advance Accounting ANSWER SHEET 1. B

26. C

51. C

76. A

101. C

126. B

151. B

176. A

2. B

27. C

52. C

77. A

102. D

127. B

152. B

177. C

3. C

28. D

53. B

78. C

103. A

128. B

153. A

178. A

4. B

29. C

54. C

79. A

104. C

129. B

154. C

179. B

5. B

30. A

55. C

80. D

105. D

130. B

155. A

180. B

6. D

31. A

56. B

81. C

106. D

131. A

156. D

181. C

7. B

32. A

57. D

82. D

107. D

132. A

157. A

182. C

8. D

33. C

58. D

83. D

108. B

133. A

158. A

183. A

9. D

34. A

59. B

84. D

109. A

134. B

159. C

184. B

10. B

35. D

60. D

85. D

110. B

135. A

160. B

185. A

11. B

36. C

61. C

86. C

111. D

136. A

161. A

186. C

12. D

37. A

62. B

87. B

112. D

137. A

162. A

187. D

13. A

38. B

63. D

88. D

113. D

138. B

163. B

188. C

14. D

39. D

64. B

89. A

114. C

139. A

164. D

189. B

15. B

40. B

65. A

90. B

115. A

140. A

165. C

190. C

16. A

41. C

66. C

91. D

116. D

141. A

166. C

191. D

17. A

42. A

67. A

92. D

117. B

142. D

167. D

192. A

18. C

43. D

68. C

93. B

118. B

143. C

168. B

193. C

19. A

44. C

69. C

94. A

119. D

144. A

169. A

20. D

45. C

70. A

95. B

120. A

145. B

170. B

21. A

46. A

71. B

96. C

121. B

146. C

171. C

22. A

47. C

72. B

97. A

122. C

147. C

172. A

23. A

48. B

73. B

98. D

123. A

148. C

173. B

24. A

49. C

74. A

99. C

124. C

149. C

174. B

25. A

50. D

75. C

100. C

125. A

150. C

175. B

ANSWER KEY

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Foreign Currency Transactions Solutions 1 . Suggested answer (b) Functional currency IAS 21 defines functional currency as the currency of the primary economic environment in which the entity operates and the primary economic environment is normally the one in which it primarily generates and expends cash. 2.

Suggested answer (b) Closing rate Closing rate is the spot exchange rate at the balance sheet date. This is sometime referred to as current rate.

3.

Suggested answer (c) True False IAS 21, par 28, provides that exchange difference arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements shall be recognized in profit or loss in the period in which they arise, except exchange differences arising on a monetary item that forms part of a reporting entity's net investment in a foreign operation, which shall be recognized in profit or loss in the separate financial statements of the reporting entity or the individual financial statements of the foreign operation, as appropriate.

4.

Suggested answer (b) Been denominated in Philippine pesos. A foreign currency transaction gives rise to a receivable or a payable, fixed in terms of the amount of foreign currency. A change in exchange rate between the functional currency and the currency in which the transaction is denominated if a gain or loss that ordinarily should be included as a component of income from continuing operations in the period in which the exchange rate changes. However, changes in exchange rates do not affect transaction that are both denominated and measured in the reporting entity's currency. Thus no foreign currency transaction gain or loss occurred.

5.

Suggested answer (b) An ordinary gain included in net income Receivables or payables denominated in foreign currency should be adjusted to its current exchange rate at each balance sheet date. "Denominated in a foreign currency" means that the contract is settled in that currency. The transaction gain or loss arising from this adjustment should ordinarily be reflected in current income. Because the title passed on December 15, the liability fixed in LCUs should have been recorded on that date at LCU exchange rate. The increase in LCU per peso at year-end decreases the peso value of the liability and results in a foreign currency transaction gain. Such gain is ordinarily treated as a component of income from continuing operations.

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Advance Accounting 6.

Suggested answer (d) of the environment in which the subsidiary primarily generates and expends cash. Functional currency translation approach is the method used to convert foreign currency into units of the reporting currency. It is appropriate for use in accounting for and reporting the financial results and relationships of foreign subsidiaries in consolidated statements. This method identifies the functional currency of the entity (the currency of the primary economic environment in which the foreign entity operates), measures all elements of the financial statements in the functional currency, and uses a current exchange rate for translation from the functional currency to the reporting currency.

7.

Suggested answer (b) Yes, Yes When an entity's local currency is the functional currency and this currency has not experienced significant inflation, translation into the reporting currency of all elements of the financial statements must be at a current rate. Assets and liabilities are translated at the exchange rate at the balance sheet rate. Revenue and expenses should be translated at the rates in effect when they were recognized. However, translation of income statement items at a weighted average rate for the period is permitted.

8.

Suggested answer (d) Uncollectibility of accounts receivable Derivative financial instruments are contracts that are supposed to protect or hedge one or more of the parties from adverse movement in the underlying base. The risk of uncollectibility of accounts receivable can be managed by effective credit policies, and therefore, does not meet the definition of a financial instrument

9.

Suggested answer (d) Discounts on accounts receivable Derivatives are financial instruments that derive their value from changes in a benchmark based on stock prices, interest rates, mortgage rates, currency rates, commodity prices, or some other agreed upon base. Thus, discounts on accounts receivable are not the basis of a benchmark for a derivative financial instrument.

10. Suggested answer (b) No initial net investment or smaller net investment than required for similar response contracts Derivative instruments must contain one or more underlyings and one or more notional amounts. Derivative instruments do contain terms that require or permit net settlement or delivery of an asset

ANSWER KEY

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Foreign Currency Transactions 11 Suggested answer (b) Must be highly effective throughout its life 1. 2. 3.

Derivative instruments contain the following: One or more underlyings and one or more notional amounts. No initial net investment or smaller net investment than required for contracts with an expected similar response to market changes. Terms that required or permit net settlement, net settlement by means outside the contract, and delivery of an asset that is substantially the same as net settlement

12. Suggested answer (d) All of the above could be underlyings Underlying is any financial or physical variable that has either observable changes or objectively verifiable changes; thus, all of the above meet the basic definition of an underying. 13. Suggested answer (a) Number of barrels of oil Notional amounts are the referenced associated asset or liability that are commonly a number of units such as barrels of oil. 14. Suggested answer (d) variable annuity contracts. Derivative instruments include future contracts, credit indexed contracts, and interest rate swaps, but not variable annuity contracts. 15. Suggested answer (b) An embedded derivative IAS 39 provides that an embedded derivative is a component of a hybrid or combined instrument that also includes a non-derivative host contract with the effect that some of the cash flows of the combined instrument vary in a way simitar to a stand-alone instrument. Note that the embedded derivative is not a separate contract. Both the embedded derivative and the host contract are contained in one combined instrument. 16. Suggested answer (a) Liquidity risk Appendix A of IFRS 7 defines liquidity risk as a risk that the entity will encctunter difficulty in meeting obligation associated with financial liabilities. 17. Suggested answer (a) The risk that one party to a financial instrument wilt cause a financial loss for the other party by failing to discharge an obligation. In other words, credit risk is the uncertainty over whether a counterparty or the party on the other side of the contract will honor the terms of the contract. Foreign Currency Transactions – MCQ Problems

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Advance Accounting 18. Suggested answer (c) Embedded derivative instrument An embedded derivative is a feature of a financial instrument or other contract, which if the feature stood alone, would meet the definition of a derivative. 19. Suggested answer (a) The embedded derivative meets the definition of a derivative instrument The hybrid instrument is not recorded at fair value. Economic characteristics and risks of the embedded instrument are not clearly and closely related to those of the host contract. For bifurcation to occur, the embedded derivative must meet the definition of a derivative instrument. 20. Suggested answer (d) Separates an embedded derivative from its host contract Bifurcation is the process of separating an embedded derivative from its host contract. This process is necessary so that hybrid instrument can be separated into their component parts, each being accounted for using the appropriate valuation techniques. 21. Suggested answer (a) Trading securities Hedge accounting is permitted for the following four types of hedges: 1. Unrecognized firm commitments. 2. Available for sale securities. 3. Foreign currency denominated hedge forecasted transactions. 4. Net investment in foreign operations. 22. Suggested answer (a) Sufficient documentation must be provided at the beginning of the process The general criteria for a hedging instrument are that sufficient documentation must be provided at the beginning of the process and the hedge must be highly effective throughout its life. 23. Suggested answer (a) Fair value hedge A fair value hedge is a hedge of the exposure to changes in the fair value of a recognized asset or liability or firm commitment. 24. Suggested answer (a) In current earnings Fair Value Hedge is a hedge of the exposure to changes in fair value of a recognized asset or liability or an unrecognized firm commitment, or an identified portion of such an asset, liability or firm commitment, that is attributable to a particular risk and could affect profit or loss. It is a protection against risk caused by fixed term, rates and prices.

ANSWER KEY

Page 70

Foreign Currency Transactions 1. 2.

Changes in fair value are recognized in earnings immediately. Gain or loss on the hedged item attributable to the hedged risk should adjust the carrying amount of the hedged item and be recognized in earnings immediately.

25. Suggested answer (a) Yes No Fair value hedge will recognize gains and losses for the effective portion of the hedging instrument in current earnings. Cash flow hedge will recognize gains and losses for the effective portion of the hedging instrument in other comprehensive income. 26. Suggested answer (c) A recognized asset or liability The four types foreign currency hedge are unrecognized firm commitment, an available for sale security, a foreign currency denominated forecasted transaction, and a net investment in foreign operations. A hedge of a recognized asset or liability is a fair value hedge or cashflow hedge but not a foreign currency hedge. 27. Suggested answer (c) Credit risk Credit risk is the risk of accounting loss from a financial instrument due to possible failure of another party to perform according to the terms of the contract. Off-balance-sheet risk is the possible amount of loss from an instrument that is not reflected on the balance sheet. Market risk is the risk that future changes in market prices may make a financial instrument less valuable. 28. Suggested answer (d) The specific names of the parties associated with the financial instrument Current standard requires the following disclosures about credit risk for financial instruments with off-balance-sheet credit risk: 1. The amount of accounting loss the entity would incur should any party to the financial instrument fail to perform according to the terms of the contract and the collateral, if any, is of no value. 2. The class of financial instruments held. 3. Categorization between instruments held for trading purposes and purposes other than trading. 29. Suggested answer (a) All financial instruments Concentrations of credit risk exist when an entity has a business activity, economic characteristic, or location that is common to most of its financial instruments. The standard requires disclosure of information about significant concentrations of credit risk for all financial instruments. Foreign Currency Transactions – MCQ Problems

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Advance Accounting 30. Suggested answer (c) Warranty obligations The value of derivative financial instruments is typically derived from the value of an underlying asset or is tied to an index. As the price of the underlying asset changes, the price of the derivative changes. Outstanding loan commitments written, recourse obligations on receivables, and future contracts are all tied to an asset account. Warranty obligations are the result of the sale of goods. 31. Suggested answer (a) It is practicable to estimate those values. The standard requires entities to disclose the fair market value of financial instruments, both assets and liabilities whether recognized or not in the financial statement of financial position, for which it is practicable to estimate fair value. Pertinent descriptive information as to the fair value of the instrument is to be disclosed if an estimate of fair value cannot be made without incurring excessive costs. 32. Suggested answer (a) Receive P200,000 from the investment company If the strike price is equal to current price, the option is said to be at the money. A put option is said to be in the money, if the strike price is greater than current price; which is the opposite on the call option (out of the money). Conversely, if the strike price is less than current price, a call option is in the money, which is out of the money, on the put option. Based on the foregoing, in the money is a favorable condition as compared to being out of the money, which is an unfavorable condition. The current value of an option depends on forward periods and spot prices. The difference between the strike and spot price, at any point in time, measures the intrinsic value of the option, so changes in spot prices will change the intrinsic value of the option. Since in this case, the option is in the money (favorable condition), where the Strike price (P100) is less'than current stock price (P120), the holder of the option shall receive an intrinsic value of P200,000 (P120 - 100 x 10,000) from the investment com 33. Suggested answer (c) Regular way purchase or sale A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the market place concerned. Under PAS 39, a regular way purchase or sale is not recognized as a derivative financial instrument. 34. Suggested answer (a) Hedged item Hedge accounting is where the related changes in the fair values of a financial asset and a financial liability are offset against each other in some way. In order to use hedge accounting, an entity will have a hedging instrument and a hedged item.

ANSWER KEY

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Foreign Currency Transactions The hedging instrument is a financial instrument (which may be a derivative) that is designated as being the hedging instrument, whose fair value or cash flows are expected to offset changes in the fair value or cash flows of a designated hedged item; while the hedged item is an asset or liability or transaction that exposes the entity to risks in the changes in fair value or future cash flows. On order for the item or transaction to be classified as a hedged item for accounting purposes it should be specifically designated as being hedged. 35. (d) PAS 21 (revised) requires that all income statement accounts is to be translated at the j spot rate at the date of the transactions. Average rates are allowed if there is no great fluctuation in the exchange rates. Since, there is a seasonal variation if would be | preferred fhaf overage monthly rate should be used. 36. Suggested answer (c) P1.00/1.025 Rates of exchange between foreign and domestic currencies may be quoted directly or indirectly. A direct quotation states the value of a single unit of foreign currency in terms of equivalent domestic currency. While an indirect quotation, states the domestic currency unit in terms of equivalent foreign currency. Therefore, the fraction for computing indirect quotation of exchange rate expressed in foreign currency should be 1.00/1.025. Note the following relationship between a direct and indirect quotation: Direct quotation = 1/indirect quotation. 37.

1/P6925 = 0.014

38. (b)

Loan Payable on December 31,2011 Divided by: Percent of Increase of Dollar-Peso exchange rate Loan payable at the transaction date, October2011 Divided by: Number of foreign currencies still unpaid ($120,000/2) Peso exchange rate against dollar

P1,848,00 110% Pl,680,000 60,000

39. Suggested answer (d) P26.75 Based on the information provided, the only determinable date of recognizing sale is when the merchandise was received by the foreign customer, which is in accordance with the principle of FOB destination. Thus, the appropriate exchange rate for the recognition of sale should be P26.75, the exchange rate at the date of acceptance. Foreign Currency Transactions – MCQ Problems

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Advance Accounting 40 41.

Direct quotation: Indirect quotation:

P56.50^1orP56.50 $1-P56.50or$.018

Suggested answer (c) P1,925,000 When terms of sale are FOB shipping point, title passes to the buyer with the loading of goods at the point of shipment. Under these terms, application of the legal rule to a year-end shipment calls for recognition of a sale. When terms of sale are FOB destination, application of the legal test calls for no recognition of the transaction until goods are received by the buyer. In practice, during an accounting period, purchases are normally recorded when goods are received and sales are recorded when goods are shipped. IAS 21 provides that except when a forward exchange contract is entered into, a transaction in a foreign currency should be recorded in the reporting currency of an entity by applying to the foreign currency amount the exchange rate existing at the time of the transaction or a rate that approximates the actual rate. Thus, the sale would be appropriately recorded at P1,925,000 ($70,000x P27.50).

42. The sale should be recorded on the date of shipment using the exchange rate on that date. Therefore the sale to be recorded is P562,000 ($10,000 x P56.20). 43. (d) Note that in this royalty agreement, 12/31/2011 is the point in which the amount due to the author (50,000 Canadian dollar x 10% = 5,000 Canadian dollars) is determined. Royalty expense is measured and the related liability is denominated at 12/31/2011. The year-end accrued would be: Royalty Expense (5,000 Canadian dollars x P33) 165,000 Royalties Payable 165,000 44.

Suggested answer (c) P139,450 Accrued royalty payable, 12/31/09 (50,000 x 10% x P27.89)

P139,450

When a foreign currency transaction in which settlement is denominated in other than a company's functional currency, foreign currency transaction gain or loss may be recognized which is the difference between the amount accrued and the amount paid. However, the requirement is to determine the amount which the company should accrue for royalties payable, therefore, the year-end accrual would be P139,450, as shown above.

ANSWER KEY

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Foreign Currency Transactions 45. (c) The machinery should be valued at the spot rate on the date of transaction, P1,300,000 (P50,000 x P26). The difference between the spot rate in balance sheet date (P32) and the spot rate (P26) on transaction date should be chargeable to loss. Capitalization due to devaluation is eliminated under the Revised PAS No. 21. 46. (a) The cost of equipment, should be recorded at P828.000 (P23 x $36,000), valued at spot rate on the date of transaction, i.e. May 31, 2011. 47. (c) Cost of the oil: 10,0000 barrels x P3,185 = P31,850,000,000 (c), the historical rate on 12/31/11 or spot rate on the date of transaction. or, alternatively: For every P1: 132 rupiah, therefore for P3,185: 420,420 rupiahs. if converted, the cost of oil in terms of Indian rupiah amounted to 4,204,200,000,000 (10,000,000 barrels x 420,420 rupiahs. The 4,204,200,000,000 rupiah peso equivalent would be P31,850,000,000 (4,204,200,000,000 x Pl/132 rupiah). 48. (b) 49. Suggested answer (c) 66,667 IAS 21, par 23 provides that at each balance sheet date, foreign currency monetary items shall be translated using the closing rate; non-monetary 'items that are measured in terms of historical cost in a foreign currency shall be translated using the exchange rate at the date of the transaction; and nonmonetary items that are measured at fair value in a foreign currency shall be translated using the exchange rates at the date when the fair value was determined. Thus, trade payable balances should be presented in the statement of financial position at P66,667 (160,000/2.40). 50. Suggested answer (d) P7,500 gain Peso equivalent, December 31, 2009 (250,000 x 1.19) P 297,500 Peso equivalent, February 1,2010 (250,000 x 1.22) 305,000 Foreign exchange transaction gain in 2010 income statement P 7,500 When the transaction is not settled in the same accounting period as that in which it occurred, the gain or loss must be recognized at any intervening balance sheet dates, if necessary. Thus, the exchange difference between that of the date of sale and the balance sheet date would be recognized in 2009 income statement; while the exchange difference between the balance sheet date and the settlement date would be recognized in 2010 income statement

Foreign Currency Transactions – MCQ Problems

Page 75

Advance Accounting 51. (c)

Date of transaction (shipment): 12/10/2011 P .4875 Balance sheet date: 12/31/2011 .4675 Foreign currency exchange gain per yen P .02 Multiplied by: Number of yens 200,000 Foreign currency exchange gain P 4,000 It should be noted that November 15, 2011 is the date of commitment wherein no entry is required. The purchase and the related payable should be recorded until the date of shipment.

52. (c) When the sale is made on 10/15/2011, Rosan would record a receivable and sales at P100,000 the peso equivalent on that date. Accounts receivable 100,000 Sales 100,000 On 11/16/2011, Rosan receives foreign currency worth P 105,000. Since the receivable was recorded at P 100,000, a P5.000 gain must be recorded. Foreign currency 105,000 Accounts receivable 100,000 Foreign exchange gain 5,000 The peso equivalent when the order was received on 9/1/2011 (P96,000) is not used to compute the gain because no entry is recorded on this date. The receipt and acceptance of a purchase order from a customer is an executory commitment which is not generally recorded. 53. Suggested answer (b) P9,000 Peso equivalent, Nov. 30. 2009 (300,000 x P1.65) P495,000 Peso equivalent, Dec. 31, 2009 (300,000 x P1.62) 486,000 Foreign exchange gain, 12/31/09 P_9,000 Wlien the transaction is not settled in the same accounting period as that in which it occurred, the gain or loss must be recognized at any intervening balance sheet dates, if necessary Thus, the exchange rate difference between the date of purchase and the balance sheet date would be recognized in 2009 income statement. The 30-day and 60-day rates vmuld affect the buyer only if the company had entered into forward contracts.

ANSWER KEY

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Foreign Currency Transactions 54. Suggested answer (c) P4,000 Peso equivalent, date of shipment (200,000 x P22.4875) P4,497,500 Peso equivalent, balance sheet date (200,000 x P22.4675) 4,493,500 Foreign exchange gain, 12/31/09 P 4,000 Again, at an intervening balance sheet date, the foreign exchange transaction gain or loss should be the difference between the foreign exchange rate at the date purchase/sale was recorded and the exchange rate at the balance sheet date. 55.

Transaction date-date of shipment -12/10/2012 Statement of financial position date - 12/31/2012 Decrease in exchange rate Payable in Yen Gain - Decrease in payable in FC

P0.2475 0.2375 P0.01 500,000 P 5,000

56.

Direct exchange rate-June 30, 2013 Direct exchange rate - June 30, 2013 (P1/HK$0.12987) Increase in exchange rate Payable in HK$ Increase in payable in foreign currency (loss)

P7.50 7.70 P0.20 10,000 P 2,000

57.

December 31,2012 (2,500;000 yen xPO.54) July 1,2013- Settlement date (2,500,000 yen x P0.52) Decrease (gain)

P1,350,000 1,300,000 P 50,000

58. (d) Foreign Supplier: Date of transaction: January 20,201 1 Date of settlement: March 20, 2011 Foreign exchange currency loss Foreign Creditor: Date of transaction: July 1, 2011: Principal Add: Interest (P 500,000 x 10%x 1/2) Total Balance sheet date: December 31,2011: Principal Add: Interest Total • Foreign exchange currency loss Foreign exchange currency loss in the income statement Foreign Currency Transactions – MCQ Problems

P 90,000 96,000

P 6,000

P500,000 25,000 P525,000 P520.000 26,000 P546,000 ,

21,000 P27,000

Page 77

Advance Accounting 59. (b)

60.

Date of transaction: October 1,2011 selling spot rate Date of settlement: October 31, 2011 selling spot rate Foreign exchange loss per Swiss franc Multiplied by: Number of Swiss francs Foreign exchange loss

P 24.15 24.22 P .07 100,000 P 7,000

Suggested answer (d) P27,000 Peso equivalent of purchases, 1/20/09 90,000 Peso equivalent of amount paid 96,000 (P 6,000) Peso equivalent of the note, 7/1/09 500,000 Peso equivalent of the note, 12/31 /09 520,000 (20,000) Peso equivalent of the interest, 7/1/09 (500,000 x 10% x 6/12) 25,000 Peso equivalent of the interest, 12/31/09 _ 26,000 (1,000) Total foreign exchange transaction loss (27,000) Again, when the transaction is not settled in the same accounting period as that in which it occurred, the gain or loss must be recognized at any intervening balance sheet dates, if necessary.

61. Suggested answer (c) (7,035) Accounts payable: Principal (100,000 x 24.15) 2,415,000 Interest (2,415,000 x 6% x 30/360) 12,075 2,427,075 Less payment: Principal (100,000 x 24.22) 2,422,000 Interest (2,422,000.x 6% x 30/360) 12,110 2,434,110 Forex loss (7,035) Buying rate is the foreign exchange rate the bank will pay to its customers who would like to exchange their foreign currency into Philippine pesos; while selling rate is the foreign exchange rate the bank will sell its foreign currency 62. December 31,2012-Statement of financial position date P14.90 February 1, 2013 - Settlement date 15.02 Increase in exchange rate P0.12 Receivable in foreign currency 20,000 Rial Increase in receivable (gain) P2,400

ANSWER KEY

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Foreign Currency Transactions 63. (d)

12/31 /2011: Balance sheet date 7/112012: Date of Settlement: 840,00 LCU x PI 18 LCU Foreign currency exchange transaction loss

P140,000 105,000 P 35,000

64. Suggested answer (b) P1,000 Peso equivalent, 12/31/09 (10,000 x P0.55) P5,500 Peso equivalent, 3/1/10 (10,000 x P0.45) 4,500 Foreign exchange transaction gain, 2010 P1,000 The requirement is to determine the foreign exchange transaction gain that should be reported for the year ended December 31, 2010, therefore, the transaction gain should be the difference between the peso equivalents using the foreign exchange rates at December 31, 2009 and March 1, 2010 (date of payment). 65. Suggested answer (a) No gain, No loss Generally, losses from exchange rate changes, on the part of the buyer, may be avoided by the following:. 1.) to have the transaction denominated in the local currency of the buyer; 2.) to pay the purchase immediately; and 3.) hedging. 'Hedging, normally, involves making a contract with a foreign currency broker to buy or sell foreign currency in the future. For a fee, a foreign currency broker assumes all the risk associated with exchange rate changes. Based on the foregoing information provided in the problem, where a letter of credit was opened and a 100% deposit cover was made, the bank assumes all the risk associated with exchange rate changes; therefore, no gain or loss from the exchange rate changes will be recognized. 66.

The forex gain is computed as follows: Balance sheet date - Dacember 31, 2012 Settlement date - July 1, 2013 ($4,000 x P56.50) Increase in receivable (gain)

P210,000 226,000 P16,000

67. When the sale is made on October 15,2013, Boysen debited the accounts receivable and credited sales for PI00,000. On November 16, 2013 Boy'sen received foreign currency worth P105,000. Since the receivable was recorded at P100,000, a P5,000 gain must be recognized. The Philippine peso equivalent when the order was received on September 1, 2013 is not used to compute the gain because no entry is recorded on this date;

Foreign Currency Transactions – MCQ Problems

Page 79

Advance Accounting 68.

Exchange rate on March 24, 2013-Date of purchase Exchange rate on April 1, 2013 - Settlement date Increase in exchange rate Accounts payable in foreign currency Forex loss

69. (c)

2011: Exchange gain or (loss) Date of transaction: AIR, December 16 Balance Sheet Date: A/R, December 31 P.68x 150,000 Date of transaction: A/P, December 2. Balance Sheet Date: A/P, December 31:: P.68x 275,000 Net Exchange gain or (loss) 2012: Exchange gain or (loss): Balance Sheet Date: A/R, December 31 Date of Settlement: A/R, January 15: P.675X 150,000 Balance Sheet Date: A/P, December 31 Date of Settlement: A/P, January 20 P.685 x 275,000 Net Exchange gain or (loss)

P 56.00 56.45 P.45 $50,000 P22,500

P103,500 102,000 P195,250

P(1,500)

187,000

8,250 P 6,750

P102,000 fO/,250 P187,000 188,375

P( 750) ( 1,375) P(2,075) (c)

70. (a)

Spot Rates 11130/2011: date of transaction P71.11-. 12/31/2011: balance sheet date P71.00<^»P. 11 gain x 300,000 = P33.000 1/20/2012: date of settlement P71.50-^P.50 loss x 300,000 = P150,000 (a)

71. (b)

7/1/2011 (dote borrowed) P210,000 12/31/2011 (balance sheet date) P240.000 <>- P30,000 loss 7/1/2012 (date of payment) P280,000-^ P40,000loss (b)

ANSWER KEY

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Foreign Currency Transactions 72. (b)

73. (b)

74.

Date of transaction: 9/1/2011. P6.27x Balance sheet date: 12/31/2011\ P6.00P.27loss x 250,000 = P67,500 loss Date of settlement: 2/1/2012 . P6.30-^ P.30 gain x 250,000 = P75,000 gain (b) Date of transaction: 1115120 /1 . P21.0^ Balance sheet date: 12/31/2011 P20.5^ P.5 gain x 100,000 = P50,000gain Date of settlement: 1/15/2012 .. P20.9^> P.4 loss x 100,000 = P40,000 loss (b)

Suggested answer (&)?500, P(1,000) Peso equivalent, November 5, 2009 (100,000 x 0.4295) Peso equivalent, December 31, 2009 (100,000 x 0.4245) Forex transaction gain, 2009

P42.950 42,450 P 500

Peso equivalent, December 31, 2009 (100,000 x 0.4245) P42,450 Peso equivalent, January 15, 2010 (100,000 x 0.4345) 43,450 Forex transaction loss, 2010 (P1,000) Again, when the transaction is not settled in the same accounting period as that in which it occurred, the gain or loss must be recognized at any intervening balance sheet dates, if necessary. Since Lindy's functional currency is the Philippine peso, a foreign exchange transaction gain or loss will result if the spot rate on the settlement date is different from the rate on the transaction date. Thus in 2009, a P500 foreign exchange transaction gain would be recognized, and in 2010, a P1,000 foreign exchange transaction loss would be recognized, as shown above. 75. 2012: Accounts receivable in Yen: December 16 - Transaction date December 31 - Adjustment (150,000 yen xP0.68) Decrease in accounts receivable (loss) Accounts payable in Yen: December 2 - Transaction date December 31 - Adjustment (275,000 yen xP0.68) Decrease in accounts payable (gain) Net forex gain (loss) Foreign Currency Transactions – MCQ Problems

P103,500 102,000

P( 1,500)

PI95,250 187,000 8250 P 6,750

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Advance Accounting 76.

2013: Accounts receivable in Yen: December 31 - statement of financial position date January 15 - settlement date (150,000 xPO.675) Decrease in accounts receivable - loss Accounts payable in Yen: December 31 - statement of financial position date January 30 - settlement date (275,000 yen xPO.685) Increase in accounts payable - loss Net forex gain (loss)

PI 02,000 101,250 P( 750) PI 87,000 188,375

77. The forex gain in 2012 is computed as follows: November 5, 2012 - Date of purchase (S$50,000 x P33.60) December 31, 2012 - Balance sheet date (S$50,000 x P33.10) Decrease (gain) - 2012 The forex loss in 2013 is computed as follows: December 31,2012 January 15, 2013 - Settlement date (S$50,000 x P33.20) Increase (loss) - 2013

(1,375) P(2,125)

P1,680,000 1,655,000 P 25,000 PI,655,000 1,660,000 P( 5,000)

78. (C) Halika (Phil. Co.): The Halika Trading Company (seller/exporter) is engaged in q foreign currency transactions, since the transaction is payable or denominated in a foreign currency which is in Thailand (Bangkok) Baht. Therefore, the increase in exchange rate will benefit Halika because he will be receiving more (P1 : 1 Baht) than what it should have been received 20 days ago (P0.9875: 1 Baht). A gain of P12.5Q0 [(P1 - P.9875) x 1,000,000] should be recognized by Halika. Busit (Thailand CoJ. Busit Company (buyer/importer), is not engaged in a foreign currency transaction, since the transaction is payable or denominated in his country's currency (not a foreign country^s currency). Therefore, any increase /decrease in exchange rate is basically ignored, because there's no gain or loss to speak of.

ANSWER KEY

Page 82

Foreign Currency Transactions 79.

Manila Pit Shop- Philippines Exchange rate-date of sale Exchange rate - settlement date Increase in exchange rate Receivable in HKS Increase in receivable (gain)

P

7.60 7.80 P 0.20 30,000 P 6,000

Action Hobbies - Hongkong - No gain, no loss. 80. (d)

81. (c)

Fixed Asset should be valued on the date of transaction, while the creditor's account (liability] should reflect the exchange rate at the intervening balance sheet date. Incidentally, the entry would be as follows: Date of transaction (November 1, 2011): Fixed Asset ($36,000 x 23) 828,000 Accounts Payable 828,000 Balance sheet date (December 31. 2011): Foreign exchange loss [(P25 - P23) x $36,000] 72,000 Accounts Payable 72,000 Therefore, in the balance sheet: Fixed assets should be valued at P828.000, while creditor's accounts should be valued at P900,000 (P828.000 + P72.000) or the spot rate on balance sheet date ($36,000 x P25) Total debits: May 1 May 15 Less: Total credits: May 10 May 15 Balance as of May 31,2011 Multiplied by: Exchange rate on the intervening balance sheet date Total

Foreign Currency Transactions – MCQ Problems

$

1,000 5,000 $ 6,000 $1,000 500

1,500 $ 4.500 P 56.75 P255,375

Page 83

Advance Accounting 82. Suggested answer (d) P828,000 P900,000 Fixed asset ($36,000 x P23.00) P 828.000 Creditor ($36,000 x P25.00) P 900.000 Except when a forward exchange contract is entered into, a transaction in a foreign currency should be recorded in the reporting currency of an entity by applying to the foreign currency amount the exchange rate existing at the time of the transaction or a rate that approximates the actual rate. And likewise with same exception, at each balance sheet date, foreign currency monetary items that result from transactions of the entity should be reported at the closing rate. 83.

Equipment ($10,000 x P55) Accounts payable ($10,000 x P57)

P550,000 P570,000

84.

On June 1, 2013, the date of shipment, a receivable was recorded at P565,000 ($10,000 x P56.50). On December 31, 2013,- the balance of the receivable in¬ crease to P574,000, therefore adjusting entry (d) is correct.

85.

On December 31, 2012 balance sheet the receivable has a balance of P750,000. The collection on January 1,2013 amounts to P770,000 (100,000 x P7.70), there¬ fore forex gain of P20,000 is to be recognized by recording entry (d).

86. (c) The gross profit arising from upstream sales: Sales to parent 2,100,000 baht Less: Cost of goods sold 1,200,000 baht Gross profit 900,000 baht Divided by: Historical rate (date of intercompany sale baht per peso) 2 baht Gross profit P 450,000 As with any transactions within the group, the effects of transactions between a parent and its foreign subsidiaries, or between foreign subsidiaries must be eliminated in full. Neither PAS 21 nor PAS 27 provides specific guidance in relation to transactions with foreign entities. A key matter of concern is whether the adjustment should be affected by changes in the exchange rate. In this regard, note paragraphs 136 and 137 of the Basis for Conclusions relating to the US Statement of Financial Accounting Standards (SFAS) No. 52 Foreign Currency Translation:

ANSWER KEY

Page 84

Foreign Currency Transactions 87. (b) In the case of the receivable denominated in Japanese yen, a foreign exchange transaction gain was recorded on the collection of the receivable. This means that more yen was received, than was recorded in the receivable account. For that to happen the rate of yen exchangeable for a pesos would have had to decrease, requiring more yen to be paid at the settlement date for the same amount of pesos at the contract date. On the other hand, there was a foreign exchange transaction loss on the payable denominated in French francs. This means that at the settlement date Shore Co. had to pay more francs than were recorded in the payable account. For this to occur the rate of francs exchangeable for a peso would have had to decrease, requiring more francs to be paid at the settlement date for the same amount of pesos at the contract date. 88. (d) - 1 / .7025 = 1.4235 and 1 / 2.5132 = .3979. 89. (a) - 10,000 cyprus pounds x P2.5132/Cyprus pound = P25,132. 90. (b) - P10,000 x 1 Singapore dollar / P.7025 = P14,235. 91. (d) The foreign exchange loss amounted to: Portion of Travel Advance that Had Been Expended Portion of Travel Advance That Had Not Been Expended

P 57 126 P183

The following analysis are needed to determine the forex gain or loss: Visual Approach in Showing How Students Should Develop a Solution 12/26/11 12/31/1? 1/5/12 Baht on hand 12,000 5,700 = 6,300 5,200 = 1100 Direct exchange rate P .50 P .48 P .42 U.S. dollars P6,000 P3,024 P 462 Charge to expense P2.976 • P2,562 Breakdown of expenses: Holding loss 5,700 baht x P.01 = P575,200 baht x P.03= P156 6,300 bahfxP.02 1,100 baht xP.06= P 66 Travel expenses 5,700 baht x P.49° =P279,3 5,200 baht x P.45=P2,340 Foreign Currency Transactions – MCQ Problems

Page 85

Advance Accounting "Average direct exchange rate during the period. Entries Required at 12/31/11 Potion of Travel Advance That Had Been Expended Travel Expenses (5,700 baht xP.49 average rate) FX Loss (5,700 bahtx P.01 decline [P.49-P.48]) Employee Receivables - Travel Advance (5,700 bohl x P.50) Portion of Travel Advance That Had Not Been Expended FX Loss (6,300 baht x P.02) Employee Receivables-Travel Advance (12,000 baht -5,700 baht = 6,300 baht)

2,793 57 2,850 126 126

92. (d) The foreign exchange loss amounted to P222 (PI56 + P66) [dj. Entity Required on 1/5/11 Travel Expenses (5,200 bahtx P.45 average rate) ([P.48 + P.42J/2 = P.45) FX Loss (5,200 baht x P.03 decline (P.45 - P.42]) FX Loss (1,100 bahtxP.06 decline [P.48 - P.42]) Cash (1,100 bahtxP.42) Employee Receivables-Travel Advance To record settlement of remaining travel advance. 93. (b)

94.

2340 156 66 462 3,024

Direct Quotation: P51.50 : $1 or P51.50 Indirect Quotation: $1 : P51.50 or $.02

Balance Exhange gain Accounts receivable: Foreign currency 1 (20,000 x P.66) Foreign currency 2 (25,000 x P 1.65) Accounts payable: Foreign currency 3(10,000 x P.70) Foreign currency 2(15,000 x P1.65)

ANSWER KEY

Page 86

Foreign Currency Transactions Net Exchange gain

Per Books P28.500 11,800 41,000 P81300 P 6,850 7,600 24,450 P38,900

Sheet P28,500 13,200 41,250 P82,950 P 6,850 7,000 24,750 P38,600

or (Loss) P -01,400 250 P1,650 P -0600 ( 300) P 300 P1,950

95. (b) Accounts receivable, 12/31/11 Accounts Payable, 12/3 //I / 96.(c)

P82,950 38,600

Cost of plant: 3 million baht x Pl/2 baht (spot rate date of transaction) = P1.5 million Trade payable: 3 million baht x Pl/1.5 baht (spot rate on the balance sheet date)=P2 million Exchange loss: Date of transaction (liability) P1.5million Balance sheet date (liability) 2.0 million Foreign exchange loss P .5 million

97. (a) - (P1.25, spot rate on the date of transaction x 2,000,000 foreign currency units = P2,500,000.) 98. (d) - (P1.20, spot tote on the date of settlement x 2,000,000 foreign currency units = P2,400,000) 99.(C) A foreign currency transaction should be recorded initially at the rate of exchange at the date of transaction (historical spot rate). But, in the subsequent balance sheet date, foreign currency monetary amounts (in which account payable is a monetary item) should be reported using the closing rate (current rate or spot rate at balance sheet date) and non-monetary items such as plant will be at historical rate. 100. (c) At the intervening balance sheet date the transaction results to a foreign exchange gain of P10.000 [(P65 - P64] x 10,000 euros]. A foreign currency transaction should be recorded initially recorded at the rate of exchange at the date of transaction (historical spot rate) But, in the subsequent balance sheet date, foreign currency monetary amounts (in which account payable is a monetary Hem) should be reported using the closing rate (current rate at balance sheet date). Foreign Currency Transactions – MCQ Problems

Page 87

Advance Accounting 101. (c) On the settlement date, the transaction results to foreign exchange gain of P20,000 [(P64-62} x 10,000 euros] 102. (d) At the intervening balance sheet date the transaction results to a foreign exchange loss of P8,000 [(P23 - P22.60} x 20,000 real]. A foreign currency transaction should be recorded initially recorded at the rate of exchange at the date of transaction (historical spot rate). But, in the subseguent balance sheet date, foreign currency monetary amounts (in which account receivable is a monetary item) should be reported using the closing rate (current rate at balance sheet date]. 103. (a) On the settlement date, the transaction results to foreign exchange loss of P12.000 {(P22.60P22) x 20,000 real] 104. (c) 105. (d) The settlement date for 40% of the amount owed (settled portion of the payable) results in a foreign- exchange loss of P400 [(P.83 - P.82) x 40,000 rupees (40% x 100,000 rupees))] Normally, the unsettled portion of the foreign currency payable would not be adjusted in 7/10/11 because an intervening financial reporting date is not involved.. 106. (d) The settlement date for remaining 60% of the amount owed results in a foreign exchange gain of P2.400 [(P.82 - P.78) x 60,000 rupees (60% x 100,000 rupees)] 107. (d) Reportab/e sales: 50,000 Syrian pounds x P.95 (the spot rate on the date of transaction) = P47.500. 108. (b) The settlement date for 20% of the amount to be received (settled portion of the receivable) results in a foreign exchange loss of P500 ffP.95 - P.90j x 10,000 pounds (20% x 50,000 pounds)] Normally, the unsettled portion of the foreign currency receivable would not be adjusted on 7/20/11 because an intervening financial reporting date is not involved.

ANSWER KEY

Page 88

Foreign Currency Transactions 109. (a) The settlement date for remaining 80% of the amount to be received results in a foreign exchange loss of PI,600 [(P.95 - P.91) x 40,000 pounds (80% x 50,000 pounds)] 110. (b) Capitalizable cost of the equipment: 1,000,000 yens x P.2J = P210,000 (bj, the historical rate on 12/31//1 or spot rate on the date of transaction (M/13/n;. Title passed on 11/1/11, the shipping date. A foreign currency transaction should be recorded initially recorded at the rate of exchange at the date of transaction (historical spot rate). 111. (d) Foreign exchange loss for 2011: 1,000,000 yens x P.02° = P20.000 [d) "This is the increase in the direct exchange rate between 11/13/11 and 12/31/11 (P.23 P.21 = P.02). 112. (d) Reportable value of the payable to the foreign vendor at 12/31/11: 1,000,000 yens x P.23 = P230.000 (d), the spot rate on 12/31/11 or current rate on 12/31/11. 113. (d) Reportable sales amount in the 2011 income statement: 100,000 yens x P.78 = P78.000 Id), the historical rate on J2/31/II or spot rate on the date of transaction (I2/II/IJ). Title passed on 12/1 l/I1, the shipping date. A foreign currency transaction should be recorded initially recorded at the rate of exchange at the date of transaction /historical spot rate. 114 .(c) Foreign exchange loss for 2011: 100,000 yens x P.05° = P5.000 (c) "This is the decrease in the direct exchange rate between 12H1IU and 12/31/11 {P.78 - P.73 = P.05). 115. (a) Reportable value of the receivable from the foreign customer at 12131/11: 100,000 yens x P.73 = P73.000 (a), the spot rate on 12/31111 or current rate on 12/31/11. 116. Suggested answer (d) P(600,000) P 0 Peso equivalent, December 1, 2009 (100,000 x P20.00) Peso equivalent, December 31, 2009 (100,000 x P26.00) Foreign exchange transaction loss Foreign Currency Transactions – MCQ Problems

P2,000,000 2,600,000 (P 600,000)

Page 89

Advance Accounting Foreign currency transactions are transactions whose terms are denominated in a currency other than the entity's functional currency. Foreign currency transaction arises when an enterprise 1.) buys or sells on credit goods or services whose prices are denominated in foreign currency; 2.) borrows or lends funds and the amounts payable or receivable are denominated in foreign currency; 3.) is a party to an unperformed forward exchange contract; or 4.) for other reasons, acquires or disposes of assets, or incurs or settles liabilities denominated in foreign currency. Transaction gains or losses result from a change in exchange rates between the functional currency and the currency in which a foreign currency transaction is denominated. While, translation adjustments result from the process of translating financial statements from the entity's functional currency into the reporting currency. 117.

December 12, 2013: Forward rate for 90 days December 31, 2013: Forward rate Increase in forward rate Foreign currency Forex gain

P9.00 9.30 P0.30 100,000 P30,000

118.

Accounts payable in foreign currency: November 30,2013: spot rate December 31,2013: spot rate Increase in spot rate Foreign currency Increase in accounts payable - Forex loss

P8.70 9.20 P0.50 100,000 P50,000

119.

The answer is computed as follows:

Accounts receivable: Philippine peso Japanese yen (200,000 yen x P.66) Thailand baht (250,000 x P1.65) Total gain Accounts payable: Philippine peso Hongkong dolar (10,000 x P7.00) Thailand baht (150,000 x PI .65) Total gain Net forex gain

ANSWER KEY

Adjusted Balances 12/31/2013

Unadjusted Balances 12/31/2013

Forex gain (loss) 12/31/2013

P285,000 132,000 412,500 P829,500

P285,000 118,000 410,000 P813,000

P

P 68,500 70,000 247,500 P386,000

P 68,500 76,000 244,500 P3 89,000

P

0 14,000 2,500 PI 6,500

0 6,000 ( 3,000) P 3,000 P19,500

Page 90

Foreign Currency Transactions 120. The balances of the accounts receivable and payable to be reported in the December 31,2013 statement of financial position can be taken from the computation in No.18 as follows: Accounts receivable P829,500 Accounts payable P386,000 121. (b) The cost of Swiss chocolate should be recorded at P1,364,500 (P27.29 x 50,000 francs), valued at spot rate on the date of transaction, i.e. July 1. 122. (c) The cost of Picasso drawing should be recorded at P626.000 (P6.26 x $100,000 francs), valued at spot rate on the date of transaction, i.e. May 1. Incidentally, the entry on the date of transaction would be: Fixed Asset Art collection 626,000 Accounts payable 626,000 Subsequent fluctuations in exchange rate prior to date of settlement will be reflected as foreign currency gain or loss. Furthermore, the forward rate should be totally ignored, because there is no hedging transactions or forward contract transactions that was entered into by Manila Museum. 123. Suggested answer (a) P(50,000) Spot rate at purchase date P 40.00 Less spot rate at settlement date 40.50 Difference (0.50) Multiply by foreign currency 100,000 Foreign exchange loss P(50,000) If a transaction is denominated in a foreign currency and measured in the reporting entity's currency, changes in the exchange rate result in gain or loss to the reporting entity, which is referred to as exchange gains or losses. In this case, the total exchange loss is the difference between the spot rates at the purchase date and the settlement date. 124. Suggested answer (c) 11,000 Peso equivalent, September 1, 2009 (50,000 x P22.74) Peso equivalent, September 30, 2009 (50,000 x P22.72) Foreign currency transaction loss, September 30, 2009 Foreign Currency Transactions – MCQ Problems

Pl,l37,000 1,136,000 P 1,000

Page 91

Advance Accounting Again, when speculating in foreign currency, both the fixed liability/receivable and the foreign currency receivable/payable are recorded in pesos using the forward rate rather than spot rate. At September 1, 2009 the 60-day forward rate is P22.74, so the transaction is recorded at P1,137,000. At an intervening balance sheet date, the foreign currency receivable/payable is adjusted to reflect the new forward rate and any resulting gain or loss is included in the income statement. At September 30, 2009, when 30 days have gone by, so the 30-day forward rate is used rather than the 60-day rate, thus, the foreign currency receivable is adjusted to P1,136,000, resulting to the recognition of loss on foreign exchange transaction of P1,000. 125.

Forward contract payable (FC) April 4,2013: Forward rate June 30,2013: Forward rate Increase in forward rate Foreign currency Increase in forward contract payable (loss)

P

14.77 14.83 P 0.06 10,000 Ringgit P 6,000

126. Suggested answer (b) 3,000 Forward rate, December 12, 2009 (0.90 x 100,000) 90,000 Forward rate, December 31, 2009 (0.93 x 100,000) 93,000 Forex gain 3,000 Hedges involving firm purchase commitments are treated in the same manner as a forward exchange contract that was entered into to hedge an exposure of a liability. Note that this hedge is 100% effective because the gain on the forward contract and the loss on the firm purchase commitment offset each other. 127.

Forward contract receivable (FC) October 17,2013: Forward rate December 31, 2013: Forward rate Increase in forward rate Foreign currency Increase in receivable - Forex gain

P

1.36 1.43 P 0.07 100,000 Baht P 7,000

128. Suggested answer (b) P(30,000) Contract gain (loss) . (40.00 - 40.30) x 100,000 P(30,000) The gain or loss on forward contract on a hedge on an exposed position is the difference between the spot rates over the life of the contract; that is, in this case, the spot rates at the inception date and the forward rate.

ANSWER KEY

Page 92

Foreign Currency Transactions 129. Suggested answer (b) P2,000 Gain (loss) on speculative contract (40.40 - 40.30) x (120,000 - 100,000) P 2,000 A gain or loss on speculative contract should be determined by multiplying the foreign currency amount of the contract by the difference between the forward rate available for the remaining maturity of the contract and the contracted forward rate. And in some instances, the forward rate last used to measure a gain or loss on that contract for an earlier period. In this case, the amount of forward contract as means of speculation is the excess of the total foreign currency acquired in a forward contract over the foreign currency used to hedge an exposed position, that is, 20,000 (120,000 100,000). 130. Foreign transactions involving forward contracts for speculation are recorded in pesos using forward rate. In the statement of financial position date, the forward contract receivable and payable are adjusted to reflect the new forward rate, any resulting gain (loss) is included in the statement of comprehensive income. The computation therefore is as follows: December 12, 2013: forward rate for 90-days P 9.00 December 31, 2013: forward rate for the remaining 9.30 Increase in forward rate P 0.30 Hongkong dollars 100,000 Forex gain P30,000 131. A foreign currency commitment is a contract or agreement denominated in foreign currency that will result in a foreign currency transaction at a later date. Both the change in the forward contract and the underlying commitment are recorded - in effect, offsetting each other. Any gain or loss on this forward contract is based on the forward rate. To compute the net gain (loss), candidates should know the entries made for this contract as follows: December 12, 2013: Forward contract receivable (FC) 900,000 Forward contract payable 900,000 To record purchase of 100,000 HK$ for Delivery in 90 days at a forward rate of P9.00 December 31, 2013 Forward contract receivable (FC) 30,000 Forex gain 30,000 To record increase in forward rate 100,000 HK$ x (P9.30 - P9.00) Foreign Currency Transactions – MCQ Problems

Page 93

Advance Accounting However this gain is offset by the decrease in the value of the underlying firm commitment as shown below: December 31, 2013 Forex loss 30,000 Change in value of firm commitment 30,000 To record forex loss (Payment in HK dollars more Philippine pesos.) The change in value of purchase commitment is treated as an adjustment to the cost of purchases when goods are received. Based on the above entries, on December 31,2013, gain or loss is recognized. 132. Suggested answer (a) P165,000 If there is a commitment hedge, the basis of the inventory being purchased will be established using the spot exchange rate at commitment date, that is PI65,000 (1.65 x 100,000). 133. Strike price of P150,000 (100,000 aht x PI.50) less the premium of P5,000 (100,000 Baht x P.05). 134. Suggested answer (b) 450,000 Options contracts require the holder to make initial non-refundable cash outlay, known as premium, as represented by the option's current value. The premium is paid, because the writer of the option takes more risk than the holder of the option. The holder can allow the option to expire, while the writer must comply if the holder chooses to exercise it. The option is valid for a specified period of time and calls for a specified buy or sell price, which is referred to as the strike price or exercise price. It is important to note that the original premium certainly is considered when determining whether an investment in an option has experienced an overall profit. The holder of an option has a right, rather than an obligation, and will not exercise the option unless it is "in the money". In that case, the holder will experience a gain, while the writer will experience a loss. Thus, in this case, the amount to be reported in the statement of comprehensive income of the holder is the difference between the strike price of P500,000 (50 x 10,000) and the premium of P50,000 (5 x 10,000) in the amount of P450,000.

ANSWER KEY

Page 94

Foreign Currency Transactions 135. Suggested answer (a) (100,000) Swap is a contractual obligation arranged by an intermediary that requires the exchange of cash flows between two parties. Common examples of swap include foreign currency swap and interest rate swap. The interest rate swap was entered into because the company feared that variable rates would increase. In essence, the swap allowed the company to exchange a variable interest rate for a fixed interest rate as though they had actually issued fixed debt. As the swap continues, new variable rates will be determined and applied to subsequent interest payments. This process of determining a new rate for the swap is referred to as resetting the rate. Generally, the variable interest rate is reset each interest date and is applied to the subsequent period's interest calculations. In an interest rate swap, the entities exchange the net difference between the variable and fixed rates, rather than actually paying and receiving the entire amounts. Thus in this case, due to decrease in interest rate by 2% (10% -8%). Canary shall pay Crown PI 00.000 (2% x 5,000.000). 136. At fair value of on December 31, 2013, P51,500. 137. The cumulative effect on retained earnings of the hedge and sale is a net gain of P65,000 computed as follows: Cash received at strike price (1,000 shares x P25) Available-for-sale securities (PI50,000-P50,000) Put option, at fair value Gain on sale of securities % Loss on time value of the option Net gain

P250,000 ( 100,000) ( 50,000) P100,000 ( 35,000) P65,000

138. Entry (b) is correct. 139. Entry (a) is correct. The forex loss is computed as follows: Settlement received at spot rate (100,000 Rupee x P.723) Balance of accounts receivable: Date of sale (100,000 Rupee x P. 73) Adjustment for forex loss, limited to gain on increase in fair value of option Forex loss

Foreign Currency Transactions – MCQ Problems

P72,300 P73,000 (

200)

72,800 P( 500)

Page 95

Advance Accounting 140. Entry (a) is correct. Cash is to be debited at the strike price of P73,000 (100,000 rupee x P.73) and foreign currency is credited at spot rate of P72,300 (100,000 Rupee x P.723). Put option is credited at its fair value of P700 on the exercise date. 141. The net impact on income i s equal to the net cash inflows (P73,000 strike price less P500 option premium). 142. (d) 143. (c) All assets should be translated at the closing (current) rate at the balance sheet date as required by PAS No. 21 (Revised). 144. Assets are to be translated using the closing rate, therefore the answer is (a),P450,000. 145. Assets are to be translated using the direct closing rate, therefore the answer is P187,969(Pl/HK$0.133)xHK$25,000. 146. (c)

Goodwill arising from acquisition Nt Dollar 175.000 Divided by: Closing/Current rate (Nt dollar: peso) Nt Dollar 1,298 Goodwill in the consolidated balance sheet P134,823 In the consolidated financial statements, any goodwill arising ont he acquisition of a foreign operation should be treated as an asset of the foreign operation. The goodwill should therefore be expressed in the functional currency of the foreign operation and translated at the closing rate at the date of each statement of financial position. The same treatment is required of any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of a foreign operaiton. In both cases exchange differences are recognized in other comprehensive income, rather than as part of the profit or loss for the period.

147 . (c)

Coonsideration transferred Less: Fair value of net assets acquired Goodwill Divided by: CLOSING/CURRENT RATE on the balance sheet peso Goodwill in the Consolidated Balance Sheet

ANSWER KEY

9.0 million 6.0 million 3.0 million 2.0 baht per P1.5 million

Page 96

Foreign Currency Transactions Examinees or students may be misled that since the functional currency is peso, the temporal method (applied only in case of subsequent to date of acquisition) should then be applied wherein goodwill or any fair value adjustments is considered as a non-monetary asset carried at historical cost be remeasured (or translated) using historical rate (which in this problem is 1.5 baht = Plj. But the problem do not fall under this category - the temporal method, instead it is a classic example of a goodwill and lair value adjustments arising from acquisition of subsidiares. Goodwill arising from the Acquisition of Subsidiaries (Date of Acquisition) When a company acquires a controlling interest in another company, the excess of the purchase price over the acquirer's interest in the fqir value of the identifiable net assets of the acquired company is recognized as goodwill on consolidation. In the context of a foreign company, the issue arises as to whether goodwill is an asset of the acquired company or an asset in the acquirer's books. If it is an asset of the acquired subsidiary, the goodwill is a foreign asset which should be translated in the same manner as any other asset of the acquired subsidiary, which may give rise to a translation difference. However, if it is treated as an asset in the acquirer's books, there is np need for translation. PAS 27 par. 47 states that: "Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amount of assets and liabilities arising on the acquisition of that foreign operation shall be treated as assets and liabilities of the foreign operations. Thus, they shall be expressed in the functional currency of the foreign operation and shall be translated at the closing rate..." Subsequent to date of acquisition, accordingly goodwill has to be measured in the functional currency of the foreign operation. If the functional currency of the foreign operation is the local currency, the goodwill on acquisition is to be translated at the closing rate (refer to also Question No. 57). On the other hand, if the functional currency of the foreign operation is the parent's currency (or the presentation currency), goodwill on acquisition is treated as a non-monetary asset and remeasured at the exchange rate of the acquisition of the foreign operation. Question No. 59 shows the translation of goodwill and Question Nos. 61 and 62 shows the translation of fair value differential under PAS 21 par. 47 stated above. 148. Suggested answer (c) 134,823 IAS 21, IN 15, requires that goodwill and fair value adjustments to assets and liabilities that arise on the acquisition of a foreign entity to be treated as part of the assets and liabilities of the acquired entity and translated at the closing rate. In addition, IAS 21, par 47, provides that any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation shall be treated as assets and liabilities of the foreign operation. Foreign Currency Transactions – MCQ Problems

Page 97

Advance Accounting And they shall be expressed in the functional currency of the foreign operation and shall be translated at the closing rate. Thus, the goodwill shall measured in the consolidated statement of financial position at P134,823 (175,000/1.298. 149. (c) - 160,000 yens x P1 / 2.40 yens = P66,667 PAS 21 par. 23 (a] requires the foreign currency monetary items, such as trade payables, of an entity to be retranslated at the closing rate at the end of a reporting period. 150. (C) The exchange difference to be presented to profit and loss is computed as follows: Date of declaration (receivable): 2,400,000 baht x P1/ 2 baht P1,200,000 Date of receipt/payment: 2,400,000 bahl x pi / 3 baht 800,000 Exchange difference P 400,000 The accounting treatment of intercompany transactions between a parent and its foreign operation, and the resulting gain exchange gains or losses on monetary items depend on whether or not the monetary item is part of the parent's net investment in the foerign operation. The dividends declared and paid by the foreign operation is not part of parent's investment in the foreign operation, any gain or loss be recorded on the aprenfe profit and loss and will flow through the consolidated or group profit and loss and will not be eliminated on consolidation as the gains or losses are "one-sided" and will only arise in the financial statements of the party that is exposed to the foreign currency intercompany payable or receivable. 151. Suggested answer (b) 32.05/ IAS 21. par 47 requires fair value adjustments to the carrying amounts of assets and liabilities arising from the acquisition of a foreign operation to be treated as assets and liabilities of the foreign operation. Therefore, they are translated at the closing rate of exchange in the amount of P32,051 (50.000/J.56). 152 . (b) -

Fair value adjustments (undervaluation of land) Nt 50,000 Divided by: CLOSING / CURRENT RATE on the balance sheet (Nt dollar per peso) 1.56 Fair value adjustments P 32,051 PAS 21 par. 47 requires fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisiion of a foreign operaiton to be treated as assets and liabilities of the foreign operation. Therefore they are translated at the closing rate of exchange.

ANSWER KEY

Page 98

Foreign Currency Transactions 153. (a)

154.

Allocated Excess arising from consolidation P1,200,000 baht Divided by: CLOSING / CURRENT RATE on the balance sheet (baht per peso) 20 Allocated Excess (over/under valuation) P 600,000 The computation is as follows: Net assets, January 1 Increase in net assets: Net income (30,000 - 20,000) Net assets, December 31 Net assets, December 31 at Current rate Translation adjustment

In NZ Dollar 20,000

Exchange Rate P15

10,000 30,000

P19

30,000

P21 CR

In Philippine Peso P300,000 190,000 P490,000 P630,000 P 140,000

155. (a) Any gain or loss arising from net monetary position (because of hyperinflation) should be presented in the income statement which will eventually be closed to retained earnings account.

156. (d) PAS No. 29 does not establish an absolute rate at which hyperinflation is deemed to arise - but allows judgment as to when restatement of financial statements becomes necessary. One of the characteristics of the economic environment of a country which indicate the existence of hyperinflation includes: "the cumulative inflation rate over three years approaches, or exceeds, 100%" The computation of cumulative inflation rate over three years is as follows: (210 - 90)/90 = 133.33%. 157. The computation is presented below: First, translate the statement of comprehensive income and retained earnings to compute the retained earnings on December 31 in Philippine pesos as follows: Singapore Exchange Philippine Dollar Rate Peso Sales 27,000 P35 945,000 Operating expenses: Depreciation 1,000 35 35,000 Others 24,000 35 840,000 Total 25,000 875,000

Foreign Currency Transactions – MCQ Problems

Page 99

Advance Accounting Net income 2,000 70,000 Retained earnings, 1/1 3,000 given 128,100 Retained earnings, 12/31 5,000 198,100 The exchange difference to be classified as other comprehensive income can now be computed by translating the statement of financial position as shown below: Singapore Exchange Philippine Dollar Rate Pesos Assets 35,000 P37 1,295,000 Liabilities Common stock Retained earnings, 12/31

18,000 12,000 5,000

37 34 per IS and RE

666,000 408,000 198,100 1,272,100 22,900 1,295,000

Translation adjustment OCI Total

158. The cumulative translation adjustment is the balancing amount (B/A) in the statement of financial position translated to Philippine peso. The computation is as follows: In Hongkong Exchange In Philippine Dollar Rate Peso Assets 100,000 P7.40 CR P74Q,000 Liabilities Common stock Retained earnings, December 31 Total Cumulated translation adjustment Total liabilities and stockholders' equity

20,000 50,000 30,000 100,000

P7.40 CR P7.10HR Given

148,000 355,000 212,000 P715.000

B/A

25,000 P740,000

159. read the discussions below: PFRS (PAS 29) - No answer given. PAS 29 (IAS 29) par. 42 states that: "(a) all amounts (ie assets, liabilities, equity items, income and expenses including comparatives) shall be translated t the closing rate at the date of the most recent statement of financial position... (b) adjusted for subsequent changes in the price level..."

ANSWER KEY

Page 100

Foreign Currency Transactions Therefore, applying PAS 29, the translated amount of cost of goods sold is P8,000,000 which will re-adjusted for price index. IASB (FASB 52) - (c) On the other hand, the lASB's belief that the currency of a country that has a highly inflationary economy has lost its utility as a store of value and cannot be a functional measuring unit. As a practical solution to the problem, the Board in FASB 52 prescribed that the financial statements of a foreign entity operating in a highly inflationary economy shall be remeasured as if the functional currency were the reporting currency (peso). For such entities this means that the foreign financial statements should be translated using the temporal method. Accordingly, the remeasurement of cost of goods sold amount to P8,065,000. FCU Exchange Rates Remeasured Beginning inventory 200,000 x PI.00 = P 200,000 Purchases 10,300,000 x P0.80 = 8,240,000 Ending inventory ( 500,000) x P0.75 = ( 375,000) Cost of goods sold 10,000,000 P8,065,000 160. The cost of sales is translated using the average rate for the period as follows: Inventory, January 1,2013 40,000 Purchases 300,000 Goods available for sale 340,000 Inventory, December 31,2013 30,000 Cost of sales 310,000 Average exchange rate P 0.0520 Cost of sales in Philippine Peso P16,120 161. (a)

Won Won Won Won Won

P40.000 (240,000 , 6). Assets should be translated using closing rate if closing rate method is used.

162. (a) The subsidiary's operations is integral to the operations of the parent's operations, so] a remeasurement or temporal method is appropriate. Depreciation is an expense related , to nonmonetary items recorded at past (historical exchange price, therefore, historical rate should be used to remeasure expenses as follows: Depreciation expenses: 2010 acquisition: 2,400,000 yens 110 years = 240,000 yens x P.625 P150,000 \ 2011 acquisition: 1,200,000 yens 110 years = 120,000 yens x P.556 66,720 Foreign Currency Transactions – MCQ Problems

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Advance Accounting 163. The depreciation expense is based on the acquisition cost of the plant assets computed as follows: 2009 acquisition (2,400,000 y-s-10) 240,000 2010 acquisition (1,200,000 y 4-10) 120,000 Total cost 360,000 Average rate for 2011 P 0.521 2011 depreciation expense P187,5 60 164. (d) Since the foreign operation is integral to the operations of the parent, therefore temporal method would be most appropriate. In remeasuring amounts of expenses that correspond with the dates of the underlying transactions, i.e. expense related to nonmonetary assets should be remeasured using the same rate used in remeasuring the asset account - historical rate. If transactions are numerous and spread over an extended period of time, an average of the rates that existed during the period maybe used to provide an approximation for the actual rates (historical rates), i.e., expenses not related to nonmonetary items should be remeasured by using average rates for the year. Therefore, Bad debts expense (not related to nonmonetary item): 60,000 LCU x P.22 average rate P13,200 Amortization of patent (related to nonmonetary item): 40,000 LCU x P.25, historical rate - date of acquisition 10,000 Rent expense (not related to nonmonetary item): 100,000 LCU x P.22, average rate 22,000 P45,200 165. Using current /closing rate method since expenses were occurred approximately even during the year, average rate would be more practical to be applied. Therefore, it should be translated at P.44 (120,000 + 80,000 + 200,000) or P 176,000.

166. Suggested answer (c) P42,000,000 Selling expenses (360,000 x 35) P12,600,000 Salaries and Wages (600,000 x 35) 21,000,000 Depreciation (240,000 x 35) 8,400,000 Consolidated expenses P42,000,000 In accordance with the only one translation method recognized by PAS 21, coupled with the information provided, that is, the charges to the expense accounts occurred approximately evenly during the year, all expenses/charges mentioned in the problem shall be translated at average rate.

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Foreign Currency Transactions 167.Suggested answer (d) P45.200 Patent amortization (40,000 x P0.25) P 10,000 Provision for doubtful accounts (60,000 x 0.22) 13,200 Rent (100,000 x 0.22) 22,000 Total remeasured expenses P 45,200 Again, under the only one translation method recognized by PAS 21, assets and liabilities are translated at the closing rate, and income and expenses are translated at the exchange rates at the dates of the transactions or at the average rate for the period when this is a reasonable approximation. Since the standard provides that the dates of the transaction shall be used to translate income and expenses, the author deemed it proper to adapt the position of IAS 21 that is, depreciation/amortization should be translated using the exchange rate at the date of purchase of the asset, unless the asset is carried at fair value, in which case the rate that existed on the date of such revaluation is to be used. Thus, the exchange, rate when the patent was acquired was used to translate the amortization of the patent. Furthermore, in some cases where the acquisition date of depreciable asset is not known, the author deemed it proper that the average rate shall be used. 168. (b) Translation adjustments under current rate method (functional currency is LCU] relating to foreign subsidiaries are not included in the determination of consolidated income. These adjustments are reported in other comprehensive income (OCI). Post's receivable from a foreign customer was denominated in a foreign currency; therefore, changes in the relative value of the peso and the foreign currency results in exchange gains or losses, which are included in the determination of net income. The recorded amount of the receivable was PI 10,000 and it was settled for P120,000; thus. Post had a P10,000 foreign exchange gain in this transaction. 169. The reported foreign exchange loss is determined as follows: Foreign exchange loss before adjustment P15,000 Gain on transaction denominated in a foreign currency 4,000 Foreign exchange loss for 2011 P11,000 The payable to the unrelated foreign supplier is a transaction denominated in a foreign currency. The payable was initially recorded at P64,000. It was included in the December 31, 2011 balance sheet at P60.000. The decrease in the payable represents a P4.000 transaction gain which is recognized in income from continuing operations in 2011. On the other hand, the P8,000 loss resulting from the translation of the accounts of the foreign subsidiary is not recognized in the 2011 income statement. Translation gains and losses translation reserve are reported in the balance sheet as a separate component of owners' equity. Foreign Currency Transactions – MCQ Problems

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Advance Accounting 170. (b) The goodwill at the date of acquisition is PI00,000 (400,000 baht x PI I 4 baht). At the yearend it is retranslated to P&O.OOO (400,000 baht x Pl/5 baht). The difference of P20.000 is recorded as an exchange loss and reported in other comprehensive income. In the consolidated financial statements, any goodwill arising not he acquisition of a foreign operation should be treated as an asset of the foreign operation. The goodwill should therefore be expressed in the functional currency of the foreign operation and translated at the closing rate at the date of each statement of financial position. The same treatment is required of any fair value adjustments to the carrying amounts of assets and liabilities arising not he acquisition of a foreign operation. In both cases exchange differences are recognized in other comprehensive income, rather than as part of the profit or loss for the period. 171. Suggested answer (c) P 0, P(200,000) Translation loss on investment (P500,000) Exchange gain on borrowing 300,000 Net translation loss (P200,000) The new standard provides that IAS 39 shall be applied to hedge accounting for foreign currency items, including the hedging of a net investment in a foreign operation. Specifically, IAS 39 states that the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is to be recognized directly in equity; whereas, the ineffective portion of the hedge is to be recognized immediately in results of operations if the hedging instrument is a derivative instrument, or else reported in equity if the instrument is not a derivative. Thus, the net translation loss of P200,000 should be presented in the stockholders' equity section of balance sheet. Furthermore, IAS 21 provides that in the preparation of the consolidated financial statements, any exchange difference arising from the net investment in a foreign operation should be reported in other comprehensive income and not in the consolidated profit or loss. If the foreign entity is subsequently sold, any such exchange differences will form part of the reported profit or loss on disposal by reclassifying the amount from equity to profit or loss. 172. Suggested answer (a) P11,000 Unadjusted foreign exchange loss PI5,000 Less foreign exchange gain from unrelated foreign supplier (P64,000 - 60,000) 4,000 Consolidated foreign exchange loss P11,000 PAS 21 recognized only one translation method for foreign operations. Under this method, assets and liabilities are translated at the closing rate, and income and expenses are translated at the exchange rate at the dates of the transaction (or at the average rate for the period when it is a reasonable approximation).

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Foreign Currency Transactions Any exchange differences arising from the translation is recognized in stockholders' equity as foreign currency translation adjustment. A foreign currency transaction is a transaction that is denominated or requires settlement in a foreign currency, which includes, among others, importation and exportation. PAS 21 provides that foreign exchange gains or losses arising from foreign currency transaction are included in the measurement of net income for the accounting period in which the exchange rate changes. Therefore, the loss resulting from the translation of the accounts of its wholly owned foreign subsidiary should be reported in the stockholders' equity section of the balance sheet; while the foreign exchange loss arising from foreign currency transaction shall be recognized in income statement. 173. The computation is:

Sales Cost of sales (Schedule 1) Gross profit Operating expenses Total comprehensive income Schedule 1: Purchases Shipments from Manila Ending inventory Cost of sales

InEUR 10,000 5,200 4,800 1,000 3,800

Exchange Rate P69.50 (A) 69.50 (A) 69.50 (A)

In Philippine Peso P695,000 361,400 333,600 69,500 P264,100

1,000 EUR 5,000 (800) 5200 EUR

174. (b)

Property, plant and equipment (900 x 300/150) 1,800 Inventory (2,700 x 300/270) 3,000 Cash 350 Total Assets 5,150 The inventory had been restated assuming that the index increased proportionately over time [i.e., (240 + 300] 12= 270] the cash and loan a monetary item and therefore is not restated, if the loan had been index linked, then it would have been restated in accordance with the loan agreement.

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Advance Accounting 175. (b)

Share capital (400 x 300/100) Retained earnings, December 31, 2008 (balancing figure) Noncurrent liabilities Current liabilities , Total Liabilities and Equity [same with total Assets

1,200 2,750 500 700

5,150 It should be noted that share capital is a non-monetary item, so, it should be restated. 176. (a)

Assets Property, plant and equipment (900 x 300/150) x P1.75 Inventory (2,700x300/270) xP 1.75 Cash: 350 x PI .75 Total Assets Equity and Liabilities Share capital (400x300/100) xPl.75 Retained earnings, December 31,2011 (balancing figure) ... Noncurrent liabilities: 500 x PI .75 Current liabilities: 700 x PI .75 Total Liabilities and Equity (same with Total Assets)

P3,150.00 5,250.00 _ 612.50 P9,012.50 PZ100.00 4,812.50 875.00 1,225.00 P9,012.50

177. (c) – Since it is a non-monetary assets assumed recorded at book value (or at cost), it is therefore, necessary to restate such account in accordance with PAS No. 29. Thus, 20,000,000 baht x 240.4/60.1 = 80,000,000 baht.

178. (a) Current rate on December 31, 2012 should be applied to determine the translated amount. Thus, 80,000,000 baht (refer to No. 71) x P1.25 = P100,000,000.

179. (b) On November 29, 2012, the following amounts should be recorded by Manilow, ignoring interest payable ont he loan. The cash advance fromt he bank is translated at the rate on the date that it was received (1,520,000 yens x P111.52 yens = P1.000,000) and a liability recorded for the same amount.

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Foreign Currency Transactions 180. (b) As the loan was still outstanding at the end of the period and it is a monetary item, it should be retranslated at the exchange rate at the end of the reporting period (1,520,000 yens x P111.66 yens = P915,663). The exchange difference should be recognized as a gain in profit or loss for the period. (P1,000,000 less P915,663 = P84,337). PAS 21 par. 28 states that "Exchange differences arising on the settlement of monetary items (i.e. bank loan payable in this case] or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements shall be recognized in profit or loss in the period in which they arise. 181. (c) The foreign currency is the local currency unit (LCU), so a translation method or closing rate method is appropriate. Foreign Exchange Currencies Rates Pesos Net Assets (SHE), beginning 20,000 .15 (HR) 3,000 Add: Net Income: (30,000 - 20,000) 10,000 .19 (HR) 1,900 Net Assets (SHE), ending 4,900 Net Assets (SHE), ending 30,000 .21 (CR) 6,300 Translation adjustment (positive - credit) - gain 1,400 SHE - stockholders' equity. HR (historical rate) was used for Net Income (Sales and Costs of Sales since the details of transaction were given.] Alt assets and liabilities are translated at the current exchange rate (CR). Thus, CR was used to determine the ending balance of Net Assets, so that the translation gain should be properly determined. 182. (c) By translating items carried at historical cost by the historical exchange rate, the temporal method maintains the underlying valuation method used by the foreign subsidiary. 183. (a) The foreign currency is the local currency unit (LCU), so a translation method or closing \ rate method is appropriate. Sales are translated at the average rate (historical rate, i.e., rate on January 17 impracticable to use since it is not given). The sales amounted to P2,380,952 (1,500,000 baht 10.630 baht) Foreign Currency Transactions – MCQ Problems

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Advance Accounting 184. (b) The foreign currency is the functional currency, so a translation method or closing rale method is appropriate. All assets are translated at the current exchange rate of P.620. Thus, accounts receivable will amount to P451.613 (280,000 baht / .620 baht) 185. (a) Beginning net monetary assets, 1/1PI00,000 x P.16 =P16,000 Increases in net monetary assets: Sale of inventory500,000 x P,20 = 10,000 Decreases in net monetary asseets: Purchase of equipment(60,000) x P.16 = (9,600) Purchase of inventory(30,000) x P.18 = (5,400) Transfer to parent(10,000) x P.21 = (2,100) Ending net monetary assets, 12/31P50,000 u P8,900 Ending net monetary assets at the current exchange rate.. P50,000 x P.22 =(11,000) Remeasurement gain P(2,100) 186. (c) Marketable equity securities are carried at market value and therefore translated at the current exchange rate under the temporal method or remeasurement method. 187. (d) The foreign currency is the functional currency, so a translation method or closing rate method is appropriate. All assets are translated at the current exchange rate of P.19. 188. (C) The peso is the functional currency, so a remeasuremenf or temporal method is appropriate. Inventory (carried at cost) is remeasured at the historical exchange rate of P. 16. Marketable equity securities (carried at market value) are remeasured at the current exchange rate of P. 19. 189. (b) The foreign currency is the functional currency, so a translation method or closing rate method is appropriate. All assets (including inventory) are translated at the current exchange rate [100,000 x P. 17].

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Foreign Currency Transactions 190. (C) The foreign currency is the functional currency, so a translation method or closing rate method is appropriate. Cost of goods sold is translated at the exchange rate in effect of the date of accounting (historical rate) recognition, which is the date the goods were sold [100,000 x P.18]. Historical rate is used since there is no indication as to its impractically, and at the same the rate is available. 191 .(d) The foreign currency is the functional currency, so a translation method or closing rate method is appropriate. Cost of goods sold is translated at the average rate for 2012 (historical rate, i.e. rate on January 17 impracticable to use since it is not given]. The cost of goods sold amounted for P20.000 (100,000 x P.20)]. 192 . (a) Because the foreign currency is the functional currency, a translation is required. All asset accounts are translated at current rates. 193.(c) Because the peso is the functional currency, a remeasurement or temporal method is required. All receivables are remeasured at current rates. Assets carried at historical cost, such as prepaid insurance and goodwill, are remeasured at historical rates.

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