Problem I

Chapter 19
Problem I
1.
Indirect Exchange Rates
Philippine Viewpoint:
1 $ = P40; 1 Peso = $0.025 ($1/P40)
1 Singapore dollar = P32.00; 1 Peso = 0.03125 Singapore (1 Singapore
Dollar/P32)
Peso
2.
FCU
P8,000
=
Direct Exchange Rate
P40.00
= $200; or
= P8,000 x $1/P40 = $200

3.
4,000 Singapore dollars x P32 = P128,000
Problem II
a. Exchange rates:
Arrival Date
1 Singapore dollar = P33.00
Direct
Exchange Rate
Indirect
Exchange Rate
(P33,000 / 1,000 Singapore

dollars)
Departure Date
1 Singapore Dollar =
P32.50
(P3,250 / 100 Singapore
dollars)
P1.00 = .03 Singapore

dollars
P1.00 = .03 Singapore

dollars
(1,000 Singapore dollars /

P33,000)
(100 Singapore dollars /

P3,250))
2.
The direct exchange rate has decreased. This means that the peso has
strengthened during Mr. Alt's visit. For example, upon arrival, Mr. Alt had to pay
P33 per each dollar. Upon departure, however, each dollar is worth just P32.50.
This means that the relative value of the peso has increased or, alternatively, the
value of the dollar has decreased.
3.
The Philippine peso equivalent values for the 100 Singapore dollars are:
Arrival date
100 dollars x P33.00 =
P3,3
00
Departure date
100 dollars x P32.50 =
3,25
0
Foreign Currency Transaction Loss
P
50
Mr. Alt held dollars for a time in which the dollars was weakening against the
peso. Thus, Mr. Alt experienced a loss by holding the weaker currency.
Problem III
1. If the direct exchange rate increases, the peso weakens relative to the foreign
currency unit. If the indirect exchange rate increases, the peso strengthens
relative to the foreign currency unit.
2.
Transaction
Importing
Importing
Exporting
Exporting
Settlement
Currency
Direct Exchange Rate

Increases
Peso
LCU
Peso
LCU
Decreases
Indirect Exchange Rate

Increases
Decreases
NA
L
NA
G
NA
G
NA
L
NA
G
NA
L
NA
L
NA
G
Problem IV
1.
December 1, 20x4 (Transaction date):
Purchases..
Accounts payable ($24,000 x P40.55)
973,200
973,200
December 31, 20x4 (Balance sheet date):

Foreign currency transaction loss...
Accounts payable [$24,000 x (P40.80 P40.55)]
Accounts payable valued at 12/31 Balance Sheet
($24,000 x P40.80)
Accounts payable valued at 12/1 Date of Transaction
($24,000 x P40.55)
Adjustment to accounts payable needed..
6,000
6,000
P979,200
973,200
P 6,000
March 1, 20x5 (Settlement date):

Accounts payable
Foreign currency transaction gain [$24,000 x (P40.80
P40.65)]
Cash ($24,000 x P40.65).
2.
979,200
3,600
975,600
a.
a.1. None transaction date (December 1, 20x4)
a.2. P6,000 loss
a.3. P3,600 gain (March 1, 20x5)
b.
b.1. P979,200 spot rate on the balance sheet date or current rate on the balance
sheet
b.2. P973,200 spot rate on the transaction date or historical rate on the balance sheet
date.
Problem V
1. December 1, 20x4 (Transaction date):
Accounts receivable ($60,000 x P40.00)
Sales
2,400,000
2,400,000

Accounts receivable..
Foreign currency transaction gain [$60,000 x (P40.70
P40.00)]
Accounts receivable valued at 12/31 Balance Sheet
($60,000 x P40.70)
Accounts receivable valued at 12/1 Date of Transaction
($60,000 x P40.00)
Adjustment to accounts receivable needed..
42,000
42,000
P2,442,000
2,400,000
P
42,000
March 1, 20x5 (Settlement date):

Cash ($60,000 x P40,60)..
Foreign currency transaction loss
Accounts receivable ($60,000 x P40.70).
2,436,000
6,000
2,442,000
2.
a.
a.1. None transaction date

a.2. P42,000 gain
a.3. P6,000 loss (March 1, 20x5)
b.
b.1. P2,442,000 spot rate on the balance sheet date or current rate on the balance
sheet
b.2. P973,200 spot rate on the transaction date or historical rate on the balance sheet
date.
Problem VI
The entries to record these transactions and the effects of changes in exchange rates
are as follows:
November 1, 20x4 (Transaction date):
Equity investment (FVTPL)/Financial Asset
Cash
3,840,000
3,840,000
To record the purchase of shares in Pineapple Computers at a cost of

$96,000 at the exchange rate of P40.
December 10, 20x4 (Transaction date):

Equipment
Cash
636,000
636,000
To record the purchase of equipment costing 12,000 euros at the

exchange rate of P53.

Equity investment (FVTPL)/Financial Asset
Unrealized gain in fair value of equity investment (financial
asset)
To record gain in fair value of Pineapple Computers share.
12/31/x4: Revalued Investment and translated at the rate
on the date of revaluation (closing/current rate):
(1,200 units x $100 x P40.50).
11/1/x4: Investment, cost (1,200 units x $80 x P40.00)
1,020,000
1,020,000
P4,860,0
00
3,840,0
00
Unrealized gain on equity investment

Less: Foreign currency transaction gain equity
investment
11/1/20x4: Date of transaction (1,200 units x $80 x
P40)..
Less: 12/31/20x4: B/S Date (1,200 units x $80 x
P40.50).
Other unrealized gain in the fair value of equity
investment...
P1,020,0
00
P3,840,000
3,888,000
Foreign currency transaction loss...

Accounts payable [$96,000 x (P53.20 P53)]
48,00
0
P
972,000
19,200
19,200
To record exchange loss on accounts payable in euros.
Accounts payable valued at 12/31 Balance Sheet

(1,200 x $80 x P53.20)
Accounts payable valued at 12/1 Date of Transaction
(1,200 x $80 x P53.00)
Adjustment to accounts payable needed..
5,107,200
5,088,000
P
19,200
February 3, 20x5 (Settlement date):

Accounts payable
Foreign currency transaction loss [$96,000 x (P53.80 P53.20)]
Cash ($96,000 x P53.80).
5,107,200
57,600
5,164,800
To record exchange loss on accounts payable in euros and settlement

of
accounts payable in euros at the spot rate of P53.80.
Note the following:

The investment in Pineapple Computers, Inc shares is a non-monetary item
that is carried at fair value as it is classified as equity investment through
profit or loss (or a financial asset FVTPL refer PFRS 9). The investment is
revalued and translated at the rate on the date of revaluation, that is, December
31, 20x4.
The equipment is translated at the spot rate at the date of purchase and, being
a non-monetary item, is carried at cost. It is not adjusted for the change in the
exchange rate at balance sheet date. The accounts payable in euros is a monetary
item and is remeasured using the curre n t/ closing rate at balance sheet date. The
exchange loss is expensed off to the income statement
Problem VII
1.
May 1
June 20
July 1
August 10
Inventory (or Purchases)

Accounts Payable
Foreign purchase denominated in pesos
8,400
Accounts Payable
Cash
Settle payable.
8,400
Accounts Receivable
Sales
Foreign sale denominated in pesos
10,000
Cash
Accounts Receivable
10,000
8,400
8,400
10,000
10,000
Collect receivable.
2.
May 1
June 20
July 1
August 10

Accounts Payable (FC1)
Foreign purchase denominated in yen:
P8,400 / P.0070 = FC1 1,200,000
8,400

Revalue foreign currency payable to
peso equivalent value:
P9,000 = FC1 1,200,000 x P.0075 June 20 spot
rate
- 8,400 = FC1 1,200,000 x P.0070 May 1 spot
rate
P 600 = FC1 1,200,000 x (P.0075 - P.0070)
600

Foreign Currency Units (FC1)
Settle payable denominated in FC1.
9,000
Accounts Receivable (FC2)

Sales
Foreign sale denominated in foreign currency 2
(FC 2)
FC3: P10,000 / P.20 = FC2 50,000
10,000

Foreign Currency Transaction Gain
Revalue foreign currency receivable
to U.S. dollar equivalent value:
P 11,000 = FC2 50,000 x P.22 Aug. 10 spot rate
- 10,000 = FC2 50,000 x P.20 July 1 spot rate
P 1,000 = FC2 50,000 x (P.22 - P.20)
1,000

Accounts Receivable (FC2
Receive FC 2 in settlement of receivable
11,000
8,400
600
9,000
10,000
1,000
11,000
Problem VIII
1. Denominated in FC
RR Imports reports in Philippine pesos:
12/1/x4
12/31/x4
1/15/x5
Transaction
Balance Sheet
Settlement
Direct
Exchange
Rate
2.
Date
Date
Date
P.70
P.66
P.68
December 1, 20x4
Accounts Payable (FC)
P10,500 = FC 15,000 x P.70
10,500
10,500
December 31, 20x4

Revalue foreign currency payable to
equivalent peso value:
P 9,900 = FC 15,000 x P.66 Dec. 31 spot rate
-10,500 = FC 15,000 x P.70 Dec. 1 spot rate
P 600 = FC 15,000 x (P.66 - P.70)
600
600
January 15, 20x5

Revalue payable to current peso equivalent
P10,200 = FC 15,000 x P.68 Jan. 15, 20x5, value
- 9,900 = FC 15,000 x P.66 Dec. 31, 20x4, value
P
300 = FC 15,000 x (P.68 - P.66)
300
300

Foreign Currency Units (FC)
P10,200 = FC 15,000 x P.68
(FC 15,000 x P.70)
600
(FC 15,000 x P.66)
AJE 12/31/x4
(FC 15,000 x P.68)

1/15/x5 Settlement
10,200
10,200
12/1/x4
10,500
Bal 12/31/x4
AJE 1/15/x5
Bal 1/15/ x5
9,900
300
10,200
10,200
Bal 1/16/x5
Problem IX
1. December 31, 20x6
Adjust receivable denominated in FC1
to current peso equivalent
and recognize exchange gain:
P83,600 = FC475,000 x P.176 Dec. 31 spot rate
- 73,600 = Preadjusted Dec. 31, 20x6, value
P10,000
Adjust payable denominated in foreign
-0-
10,000
10,000
5,200
5,200
currency to current peso equivalent

and recognize exchange gain:
P175,300 = Preadjusted Dec. 31, 20x6, value
- 170,100 = FC2 21,000,000 x P.0081, Dec. 31 spot rate
P 5,200
2.

1,900
Adjust receivable denominated in FC1
to equivalent peso value on
settlement date:
P85,500 = FC1 475,000 x P.180 20x7 collection date value
- 83,600 = FC1 475,000 x P.176 Dec. 31, 20x6, spot rate
P 1,900 = FC1 475,000 x (P.180 - P.176)
Cash
Accounts Receivable (P)
Collect all accounts receivable.
3.
164,000
85,500
85,500
164,000

6,300
Adjust payable to equivalent peso
value on settlement date:
P163,800 = FC2 21,000,000 x P.0078 20x7 payment date value
- 170,100 = FC2 21,000,000 x P.0081 Dec. 31, 20x6, spot rate
P 6,300 = FC2 21,000,000 x (P.0078 - P.0081)
Accounts Payable (P)
Cash
Payment of all accounts payable.
4.
5.
5.
6,300
86,000
163,800
163,800
86,000
Transaction gain on FC:

December 31, 20x6
December 31, 20x7
Overall
P10,000
1,900
P11,900
gain
gain
gain
Transaction gain on FC2:

December 31, 20x6
December 31, 20x7
Overall
P 5,200
6,300
P11,500
gain
gain
gain
Overall foreign currency transactions gain:

Gain on FC1 transaction
Gain on FC2 transaction
1,900
P11,900
11,500
P23,400
CDL could have hedged its exposed position. The exposed positions are only
those denominated in foreign currency units. The accounts receivable
denominated in FC1 could be hedged by selling FC1 in the forward market,
thereby locking in the value of the FC1. The accounts payable denominated in
FC2 could be hedged by buying FC2 in the forward market, thereby locking in
the value of the FC2.
Problem X
Accounts
Receivable
Accounts
Payable
Foreign Currency
Transaction
Exchange Loss
Foreign Currency
Transaction
Exchange Gain
Case 1
NA
P16,000(a)
NA
P2,000(b)
Case 2
P38,000(c)
NA
NA
P2,000(d)
Case 3
NA
P27,000(e)
P3,000(f)
NA
Case 4
P6,250(g)
NA
P1,250(h)
NA
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
LCU
LCU
LCU
LCU
LCU
LCU
LCU
LCU
40,000 x P.40
40,000 x (P.40 - P.45)
20,000 x P1.90
20,000 x (P1.90 - P1.80)
30,000 x P.90
30,000 x (P.90 - P.80)
2,500,000 x P.0025
2,500,000 x (P.0025 - P.003)
Multiple Choice Problems

1
.
2.
C$1 / P.90 (C$1.11 = P1.00)
P.4895
P.4845
3.
4
.
FC30,000
FC30,000
Gain
20x4
P14,685
14,535
P
150
P.4845
P.4945
x
x
January 15
Foreign Currency Units (LCU)
Exchange Loss
Accounts Receivable (LCU)
Collect foreign currency receivable and
recognize foreign currency transaction
loss for changes in exchange rates:
P300,000 = (LCU 900,000 / LCU 3) Jan. 15 value
- 315,000 = Dec. 31 Peso equivalent
P 15,000 Foreign currency transaction loss
FC30,000
FC30,000
Loss
20x5
P14,535
14,835
P (300)
300,000
15,000
315,000
P120,000
= July 1, 20x4, Peso equivalent value
P140,000
P(35,000)
= December 31, 20x4, Peso equivalent value

(LCU 840,000 / P140,000) = LCU 6 / P1
(LCU 840,000 / 8) = P105,000
P280,000
-240,000
P 40,000
= December 31, 20x4, Peso equivalent value

-105,000
5
.
x
x
6. c P4,000
AJE
Accounts Payable (FCU)

(200,000 x P.4875) 12/10/x4
4,000
(200,000 x P.4675) 12/31/x4

Foreign Exchange Gain
7. d P27,000 = P6,000 + P20,000 + P1,000
97,500
93,500
4,000
4,000
1/20/x4
AJE
3/20/x4
Foreign Exchange Loss
90,000
6,000
96,000
6,000
6,000
Notes Payable (FCU)
7/01/x4
AJE
12/31/x4
20,000

Notes Payable (FCU)
Interest expense
Interest Payable (FCU)
500,000
20,000
520,000
20,000

(FCU500,000 x .10 x 1/2
year)
AJE
12/3/x4
25,000
25,000
1,000
26,000
25,000

1,000
1,000
8. c P5,000
10/15/x4
AJE
Accounts Receivable (FCU)

100,000
5,000
11/16/x4
105,000
Settlement
Accounts Receivable (FCU)

11/16/x4
105,000
5,000
5,000
Note: The receivable is recorded on October 15, 20x4, when the goods were
shipped, not on September 1, 20x4, when the order was received.
9. b P1,000
x4 AJE
500
X5 AJE
1,000
Settlement
4,500
(10,000 x P.60)
4/08/x4
6,000
(10,000 x P.55)
12/31/x4
5,500
(10,000 x P.45)
3/01/x5
4,500
Bal.
1,000
-0-
X5 AJE Accounts Payable (FCU)

1,000
10
.
P9,000 = 300,000 FCUs x (P1.65 - P1.62). The foreign currency transaction

gain is computed using spot rates on the transaction date (November 30,
20x4) and the balance sheet date (December 31, 20x4). The forward
exchange rates are not used because the transaction was not hedged.
11. b
Cash collected (spot rate date of settlement): 900,000 LCU x P.3333 = P300,000
12. d
20x4: (P.5395 P.5445) loss x 70,000 FCU = P350 loss
20x5: (P.5445 - .P5495) loss x 70,000 FCU = P350 loss
13. c
Date of transaction (7/7)
Balance sheet date (8/31)
Foreign exchange currency gain per FCU
Multiplied by: No. of FCU
Foreign exchange currency gain
2.08
2.05
P
.03
350,000
P 10,500
14. b
1.58
1.55
P
.03
375,000
P 11,250
15. b The value of the asset acquired should be the spot rate on the date of transaction,
i.e. P-80. Therefore, the final recorded value of the electric generator should be
P40,000 (P.80 x 50,000 FCs)
16. a
Date of transaction
Date of settlement
.75
.80
P
.05
200,000
P 10,000
17. d
.60
.65
P
.05
80,000
P 4,000
18. b
1 .65
1.62
P
.03
300,000
P 9,000
19. b
1.49
1.45
P
.04
500,000
P 20,000
20. a
Date of arrival (P1,000 / 480,000 FC)
Date of departure (P100/50,000 FC)
Foreign exchange currency loss per FCU
Foreign exchange currency loss
P .00208
.
00200
P .00008
50,000
P
4
21. b
Foreign exchange currency gain per LCU
Multiplied by: No. of LCU
1.20
1.10
P
.10
5,000
P
500
22. d
Foreign exchange currency gain per LCU
Multiplied by: No. of LCU
1. 08
1.10
P
.02
23,000
P
460
23. a
Date of transaction (9/3) : P17,000 / P.85 = 20,000 FC
Date of settlement (10/10)
Foreign exchange currency loss per FC
Multiplied by: No. of FC
. 85
.90
P
.05
20,000
P 1,000
24. b
Date of transaction (3/1) : P31,000 / P.31 = 100,000 FC
Foreign exchange currency gain per FC
. 31
.34
P
.03
100,000
P 3,000
25. a
.265
.262
P
.003
100,000
P
300
26. d
.262
.264
P
.002
100,000
P
200
27. c
Foreign exchange currency gain (No. 25)
Foreign exchange currency loss (No. 26)
Overall gain , net
P
_
P
300
200
100
or,
.265
.264
P
.001
100,000
P
100
28. c
9/5: Original forward rate or 90-day forward rate
12/2: Date of expiration of the contract (assumed) since
the
term spot rate was used
.1850
.1865
.0015
100,000
P
150
It should be noted that since, the forward contract was not designated as a hedge, offsetting of gain or loss
on the hedged item and hedging instrument is not allowed. Therefore, the foreign exchange gain due to
revaluation of receivable from foreign currency receivable arising from forward contract will be reported
separately, instead of being netted against the exchanges loss of P300 [(P.1865 P.1835) x 100,000 FCs.]
29. c the question is related to purchase transaction or exposed liability, therefore the
payment of the liability is equivalent to the spot rate on the date of settlement.
30. b
20x4
Date of transaction (12/1/20x4)
Balance sheet date (12/31/20x4)
.0095
.
0096
P
.
0001
1,000,000
P
100
20x5
Date of settlement (1/10/20x5)
.0096
.0094
P
.0002
1,000,000
P
200
31. c
P125,000
140,000
P 15,000
32. b any gain or loss on foreign currency should be considered ordinary.

33. d
3/1: Date of expiration of the contract
P
P
.940
.930
.010

100,000
P 1,000
It should be noted that since, the forward contract was not designated as a hedge, offsetting of gain or loss
on the hedged item and hedging instrument is not allowed. Therefore, the foreign exchange gain due to
revaluation of payable to foreign exchange dealer arising from forward contract will be reported separately,
instead of being netted against the exchanges loss of P1,500 [(P.945 P.93) x 100,000 FCs.]
34. c
It was assumed that the forward contract was designated as a hedging instrument.
Hedged Item: Exposed Asset (Receivable)
1/1: Date of transaction spot rate
12/31: Balance sheet date
.945
.930
P
.015
100,000
P
1,500
P 1,500
Forward Contract/Hedging Instrument:

3/1: Date of expiration of the contract
Net loss
.940
.930
P
.010
100,000
P 1,000
P
1,000
500
35. d
It was stated in the requirement that the forward contract will not be used, therefore,
only the loss on hedged item will be recognized.
Hedged Item: Exposed Asset (Receivable)
.945
.930
P
.015
100,000
P
1,500
36. d
Date of transaction (4/8) : P1 / .65 FC (direct quote)
Date of settlement (5/8): P1/ .70 FC (direct quote)
1.54
1.43
P
.11
35,000
P 3,850
37. d the amount of sales should be the spot rate on the date of transaction (or the
balance sheet date - historical rate). I.e., P1.7241 x 10,000 FCs = P17,241.
38. e
39. b
P 1.7241
1.818
2
P
.0941
10,000
P
941

P
P
P
1.8182
1.6666
.1516
10,000
1,516
40. a since accounts payable is an exposed account meaning their value will fluctuate
based on the spot exchange rates, the value of the accounts payable should be the
value on May 8, i.e., the spot rate of P1.25 (P.15 x 2,000,000 FCs = P2,500,000).
41. c

1.25
1.26
P
0.01
2,000,00
0
P
20,000
42. e in a two-transaction approach, the recognition of foreign exchange gain or loss is

separate from the settlement, therefore, the amount of accounts payable to be settled
should be the spot rate on the settlement date, i.e., P1.20 (P1.20 x 2,000,000 FCs =
P2,400,000)
43. a
P8,000
6,900
P 1,100
44. d
4/8/20x3: Date of transaction
12/31/20x3: Balance sheet date
P 97,000
103,000
P 6,000

P103,000
105,000
P 2,000
45. d
Theories
1 False
.
2 False
.
3 True
.
4 False
.
5 True
.
6.
True
7.
False
8.
True
9.
False
10
,
True
11
.
12
.
13
.
14
.
15
.
Tru
e
D
C
C
B
16
.
17
.
18
.
19
.
20
.
d
d
c
b
a
21
.
22
.
23
.
24
.
25
.
26.
27.
28.
29.
30.
31
.
32
.
33
.
34
.
35
.
36
37.
38.
39.

Problem I

Diunggah oleh

Informasi Dokumen

Judul Asli

Hak Cipta

Format Tersedia

Bagikan dokumen Ini

Bagikan atau Tanam Dokumen

Opsi Berbagi

Apakah menurut Anda dokumen ini bermanfaat?

Apakah konten ini tidak pantas?

Hak Cipta:

Format Tersedia

Problem I

Diunggah oleh

Hak Cipta:

Format Tersedia

Chapter 19

Indirect Exchange Rates

Direct Exchange Rate

= P8,000 x $1/P40 = $200

4,000 Singapore dollars x P32 = P128,000

(P33,000 / 1,000 Singapore

P1.00 = .03 Singapore

P1.00 = .03 Singapore

(1,000 Singapore dollars /

(100 Singapore dollars /

Foreign Currency Transaction Loss

Direct Exchange Rate

Indirect Exchange Rate

December 31, 20x4 (Balance sheet date):

March 1, 20x5 (Settlement date):

December 31, 20x4 (Balance sheet date):

March 1, 20x5 (Settlement date):

a.1. None transaction date

To record the purchase of shares in Pineapple Computers at a cost of

December 10, 20x4 (Transaction date):

To record the purchase of equipment costing 12,000 euros at the

December 31, 20x4 (Balance sheet date):

Unrealized gain on equity investment

Foreign currency transaction loss...

To record exchange loss on accounts payable in euros.

Accounts payable valued at 12/31 Balance Sheet

February 3, 20x5 (Settlement date):

To record exchange loss on accounts payable in euros and settlement

Note the following:

Inventory (or Purchases)

Inventory (or Purchases)

Foreign Currency Transaction Loss

Accounts Payable (FC1)

Accounts Receivable (FC2)

Accounts Receivable (FC2)

Foreign Currency Units (FC2)

December 31, 20x4

January 15, 20x5

Accounts Payable (FC)

(FC 15,000 x P.68)

currency to current peso equivalent

Accounts Receivable (FC1)

Accounts Payable (FC2)

Transaction gain on FC:

Transaction gain on FC2:

Overall foreign currency transactions gain:

Multiple Choice Problems

C$1 / P.90 (C$1.11 = P1.00)

= July 1, 20x4, Peso equivalent value

= December 31, 20x4, Peso equivalent value

= July 1, 20x5, Peso equivalent value

= December 31, 20x4, Peso equivalent value

Accounts Payable (FCU)

Accounts Payable (FCU)

Foreign Exchange Loss

Interest Payable (FCU)

Foreign Exchange Loss

Accounts Receivable (FCU)

Accounts Receivable (FCU)

X5 AJE Accounts Payable (FCU)

P9,000 = 300,000 FCUs x (P1.65 - P1.62). The foreign currency transaction

Foreign exchange currency gain

Foreign exchange currency gain