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 Page 1

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

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

Advance Accounting
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

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 non-
monetary 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

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).

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
Foreign Currency Transactions – MCQ Theory Page 7

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
6. 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.
7. 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
8. 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

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. Punzalan 2014
13. An example of a notional amount is
a. Number of barrels of oil. c. Currency swaps.
b. Interest rates. d. Stock price. Punzalan 2014
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

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

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.

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 Punzalan 2014

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

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 Phil-
Export'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
Foreign Currency Transactions – MCQ Problems Page 14

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

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

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

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 P.4955

December 10,2011 4875
December 31,2011 4675
January10,2012 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

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

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

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

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

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

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)

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

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.

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-0-
b. P6,000 loss P-0-
c. P-0- P6,000 loss
d. P-0- P6,000 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.

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

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? Guerrero 2013
a. Forex loss 9,000
Accounts receivable 9,000
b. Accounts receivable 7,000
Forex gain 7,000
c. Accounts receivable 7,000
Forex gain 7,000
d. Accounts receivable 9,000
Forex gain 9,000

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
b. Cash 730,000
Forex loss 20,000
c. Cash 770,000
Deferred forex loss 15,000
d. Cash 770,000
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.

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
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.

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

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

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.

Advance Accounting

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


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
2011 transaction arising from the Pakistan wholesaler?
a. 1,000 loss c. 400 gain
b. 1,000 gain d. 400 loss
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
2011 transaction arising from the Syrian wholesaler?
a. 500 gain c. 2,500 gain
b. 500 loss d. 2,500 loss

Advance Accounting
2011 transaction arising from the Syrian wholesaler?
a. 1,600 loss c. 2,000 gain
b. 1,600 gain d. 2,000 loss

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
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

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)

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

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

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:

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

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

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.

Advance Accounting
10/1/012. 12/31/012 3/3/013 4/17/013

Hedged item:
Jenny share price P 250 P 220 P 200 P 200
Number of shares 1,000 1,000 1,000 1,000
Hedging instrument
Put option (1,000 shares):
Intrinsic value P 0 P30,000 P50,000 P50,000
Time value 35,000 21,500 5,300 0
Fair value P35,000 P51,500 P55,300 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 250,000
b. Cash 250,000
Available-for-sale securities 100,000
Put option 50,000
Gain on sale of securities 100,000
c. Cash 200,000
Put option 50,000
d. Cash 200,000
Put option 50,000

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
c. Cash/foreign currency 73,000
Foreign exchange gain 900
d. Cash/Foreign currency 73,000
Foreign exchange gain 200
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
c. Cash 73,000
d. Cash 72,100
Put options 500

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:
Translated at
Current rates Historical rates
Marketable securities, at cost... P 65,000 P 75,000
Inventories, at average cost 500,000 550,000
Patents 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:
Translated at
Note receivable, long-term P240,000 P200,000
Prepaid rent 85,000 80,000
Patent 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

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
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

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

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.

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

Revaluation Reserve & Retained Earnings

155. The following equity relates to an entity operating in a hyperinflationary economy:
Before After
PAS 29 Restatement
Share capital 100 170
Revaluation reserve 20
Retained earnings 30
150 270
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.
Change in Annual rate

Date Index index of Inflation
January 1,2009 90
January 1,2010 120 30 30/100 = 30.00%
January 1,2011 150 30 30/130 = 23.08%
January 1,2012 210 60 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

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.

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

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

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:
LCU
Depreciation of equipment (acquired 1/1/2009) 120,000
Provision for doubtful accounts 80,000
Rent 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

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
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
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

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.

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.

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
174. Pinoy Company operates in a hyperinflationary economy. Its balance sheet at December 31,
2011, follows:
Baht (WO)
Property/plant and equipment 900
Inventory 2,700
Cash 350
Share capital (issued 2007) 400
Retained earnings 2,350
Noncurrent liabilities 500
Current liabilities 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

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

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
December 31.2012 1.25
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


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

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 P.15= 1 FC
April 1 P.17 = 1
May 1 P.18 = 1
August 1 P.19 = 1
October 1 P.20 = 1
December31 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)

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
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
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 =

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
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-or-
market 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.
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.

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

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

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

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 Page 66

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.

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 Page 68

11 Suggested answer (b) Must be highly effective throughout its life
Derivative instruments contain the following:

1. One or more underlyings and one or more notional amounts.
2. No initial net investment or smaller net investment than required for contracts with an
expected similar response to market changes.
3. 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.

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

1. Changes in fair value are recognized in earnings immediately.

2. 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.

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 Page 72

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 P1,848,00
Divided by: Percent of Increase of
Dollar-Peso exchange rate 110%
Loan payable at the transaction date,
October2011 Pl,680,000
Divided by: Number of foreign
currencies still unpaid ($120,000/2) 60,000
Peso exchange rate against dollar
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.

Advance Accounting
40 Direct quotation: P56.50^1orP56.50

Indirect quotation: $1-P56.50or$.018
41. 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 Page 74

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

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.
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 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 Page 76

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 P0.2475
Statement of financial position date - 12/31/2012 0.2375
Decrease in exchange rate P0.01
Payable in Yen 500,000
Gain - Decrease in payable in FC P 5,000
56. Direct exchange rate-June 30, 2013 P7.50
Direct exchange rate - June 30, 2013 (P1/HK$0.12987) 7.70
Increase in exchange rate P0.20
Payable in HK$ 10,000
Increase in payable in foreign currency (loss) P 2,000
57. December 31,2012 (2,500;000 yen xPO.54) P1,350,000
July 1,2013- Settlement date (2,500,000 yen x P0.52) 1,300,000
Decrease (gain) P 50,000
58. (d)
Foreign Supplier:
Date of transaction: January 20,201 1 P 90,000
Date of settlement: March 20, 2011 96,000
Foreign exchange currency loss P 6,000
Foreign Creditor:
Date of transaction: July 1, 2011:
Principal P500,000
Add: Interest (P 500,000 x 10%x 1/2) 25,000
Total P525,000
Balance sheet date: December 31,2011:
Principal P520.000
Add: Interest 26,000
Total P546,000
• Foreign exchange currency loss 21,000
Foreign exchange currency loss in the income
statement , P27,000

Advance Accounting
59. (b)
Date of transaction: October 1,2011 selling spot rate P 24.15
Date of settlement: October 31, 2011 selling spot rate 24.22
Foreign exchange loss per Swiss franc P .07
Multiplied by: Number of Swiss francs 100,000
Foreign exchange loss P 7,000
60. 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 Page 78

63. (d)
12/31 /2011: Balance sheet date P140,000
7/112012: Date of Settlement: 840,00 LCU x PI 18 LCU 105,000
Foreign currency exchange transaction loss P 35,000

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 P210,000
Settlement date - July 1, 2013 ($4,000 x P56.50) 226,000
Increase in receivable (gain) 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;

Advance Accounting
68. Exchange rate on March 24, 2013-Date of purchase P 56.00

Exchange rate on April 1, 2013 - Settlement date 56.45
Increase in exchange rate P.45
Accounts payable in foreign currency $50,000
Forex loss P22,500
69. (c)
2011: Exchange gain or (loss)
Date of transaction: AIR, December 16 P103,500
Balance Sheet Date: A/R, December 31
P.68x 150,000 102,000 P(1,500)
Date of transaction: A/P, December 2. P195,250
Balance Sheet Date: A/P, December 31::
P.68x 275,000 187,000 8,250
Net Exchange gain or (loss) P 6,750
2012: Exchange gain or (loss):

Balance Sheet Date: A/R, December 31 P102,000
Date of Settlement: A/R, January 15:
P.675X 150,000 fO/,250 P( 750)
Balance Sheet Date: A/P, December 31 P187,000
Date of Settlement: A/P, January 20
P.685 x 275,000 188,375 ( 1,375)
Net Exchange gain or (loss) 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 Page 80

72. (b)
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)
73. (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)
74. Suggested answer (&)?500, P(1,000)

Peso equivalent, November 5, 2009 (100,000 x 0.4295) P42.950
Peso equivalent, December 31, 2009 (100,000 x 0.4245) 42,450
Forex transaction gain, 2009 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 P103,500
December 31 - Adjustment
(150,000 yen xP0.68) 102,000
Decrease in accounts receivable (loss) P( 1,500)
Accounts payable in Yen:

December 2 - Transaction date PI95,250
December 31 - Adjustment
(275,000 yen xP0.68) 187,000
Decrease in accounts payable (gain) 8250
Net forex gain (loss) P 6,750

Advance Accounting
76. 2013: Accounts receivable in Yen:

December 31 - statement of financial
position date PI 02,000
January 15 - settlement date
(150,000 xPO.675) 101,250
Decrease in accounts receivable - loss P( 750)
Accounts payable in Yen:
December 31 - statement of financial
position date PI 87,000
January 30 - settlement date
(275,000 yen xPO.685) 188,375
Increase in accounts payable - loss (1,375)
Net forex gain (loss) P(2,125)
77. The forex gain in 2012 is computed as follows:

November 5, 2012 - Date of purchase (S$50,000 x P33.60) P1,680,000
December 31, 2012 - Balance sheet date (S$50,000 x P33.10) 1,655,000
Decrease (gain) - 2012 P 25,000
The forex loss in 2013 is computed as follows:
December 31,2012 PI,655,000
January 15, 2013 - Settlement date (S$50,000 x P33.20) 1,660,000
Increase (loss) - 2013 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

79. Manila Pit Shop- Philippines

Exchange rate-date of sale P 7.60
Exchange rate - settlement date 7.80
Increase in exchange rate P 0.20
Receivable in HKS 30,000
Increase in receivable (gain) P 6,000
Action Hobbies - Hongkong - No gain, no loss.
80. (d)
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)
81. (c)
Total debits:
May 1 $ 1,000
May 15 5,000
$ 6,000
Less: Total credits:
May 10 $1,000
May 15 500 1,500
Balance as of May 31,2011 $ 4.500
Multiplied by: Exchange rate on
the intervening balance sheet date P 56.75
Total P255,375

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) P550,000

Accounts payable ($10,000 x P57) 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

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 P 57
Portion of Travel Advance That Had Not Been Expended 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

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) 2,793
FX Loss (5,700 bahtx P.01 decline [P.49-P.48]) 57
Employee Receivables - Travel Advance (5,700 bohl x P.50) 2,850
Portion of Travel Advance That Had Not Been Expended
FX Loss (6,300 baht x P.02) 126
Employee Receivables-Travel Advance 126
(12,000 baht -5,700 baht = 6,300 baht)
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) 2340
FX Loss (5,200 baht x P.03 decline (P.45 - P.42]) 156
FX Loss (1,100 bahtxP.06 decline [P.48 - P.42]) 66
Cash (1,100 bahtxP.42) 462
Employee Receivables-Travel Advance 3,024
To record settlement of remaining travel advance.
93. (b)
Direct Quotation: P51.50 : $1 or P51.50
Indirect Quotation: $1 : P51.50 or $.02
94.
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

Net Exchange gain

Per Books Sheet or (Loss)
P28.500 P28,500 P -0-
11,800 13,200 1,400
41,000 41,250 250
P81300 P82,950 P1,650
P 6,850 P 6,850 P -0-
7,600 7,000 600
24,450 24,750 ( 300)
P38,900 P38,600 P 300
P1,950
95. (b)
Accounts receivable, 12/31/11 P82,950
Accounts Payable, 12/3 //I / 38,600
96.(c)
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).

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 {(P22.60-
P22) 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

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) P2,000,000
Peso equivalent, December 31, 2009 (100,000 x P26.00) 2,600,000
Foreign exchange transaction loss (P 600,000)

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 P9.00
December 31, 2013: Forward rate 9.30
Increase in forward rate P0.30
Forex gain P30,000
118. Accounts payable in foreign currency:
November 30,2013: spot rate P8.70
December 31,2013: spot rate 9.20
Increase in spot rate P0.50
Increase in accounts payable - Forex loss P50,000
119. The answer is computed as follows:
Adjusted Unadjusted Forex gain
Balances Balances (loss)
12/31/2013 12/31/2013 12/31/2013
Accounts receivable:
Philippine peso P285,000 P285,000 P 0
Japanese yen (200,000 yen x P.66) 132,000 118,000 14,000
Thailand baht (250,000 x P1.65) 412,500 410,000 2,500
Total gain P829,500 P813,000 PI 6,500
Accounts payable:
Philippine peso P 68,500 P 68,500 P 0
Hongkong dolar (10,000 x P7.00) 70,000 76,000 6,000
Thailand baht (150,000 x PI .65) 247,500 244,500 ( 3,000)
Total gain P386,000 P3 89,000 P 3,000
Net forex gain P19,500
ANSWER KEY Page 90

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.

Peso equivalent, September 1, 2009 (50,000 x P22.74) Pl,l37,000
Peso equivalent, September 30, 2009 (50,000 x P22.72) 1,136,000
Foreign currency transaction loss, September 30, 2009 P 1,000

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 P 14.77
June 30,2013: Forward rate 14.83
Increase in forward rate P 0.06
Foreign currency 10,000 Ringgit
Increase in forward contract payable (loss) 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 P 1.36
December 31, 2013: Forward rate 1.43
Foreign currency 100,000 Baht
Increase in receivable - Forex gain 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


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
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)

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

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) P250,000
Available-for-sale securities (PI50,000-P50,000) ( 100,000)
Put option, at fair value ( 50,000)
Gain on sale of securities % P100,000
Loss on time value of the option ( 35,000)
Net gain 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) P72,300

Balance of accounts receivable:
Date of sale (100,000 Rupee x P. 73) P73,000
Adjustment for forex loss, limited to gain
on increase in fair value of option ( 200) 72,800
Forex loss P( 500)

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 9.0 million
Less: Fair value of net assets acquired 6.0 million
Goodwill 3.0 million
Divided by: CLOSING/CURRENT RATE on the balance sheet 2.0 baht per
peso
Goodwill in the Consolidated Balance Sheet P1.5 million
ANSWER KEY Page 96

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.

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.

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

153. (a)
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
154. The computation is as follows:
Exchange In Philippine
In NZ Dollar Rate Peso
Net assets, January 1 20,000 P15 P300,000
Increase in net assets:
Net income (30,000 - 20,000) 10,000 P19 190,000
Net assets, December 31 30,000 P490,000
Net assets, December 31 at
Current rate 30,000 P21 CR P630,000
Translation adjustment 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

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 18,000 37 666,000

Common stock 12,000 34 408,000
Retained earnings, 12/31 5,000 per IS and RE 198,100
1,272,100
Translation adjustment OCI 22,900
Total 1,295,000
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 20,000 P7.40 CR 148,000

Common stock 50,000 P7.10HR 355,000
Retained earnings, December 31 30,000 Given 212,000
Total 100,000 P715.000
Cumulated translation adjustment B/A 25,000

Total liabilities and stockholders' equity 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

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 Won
Purchases 300,000 Won
Goods available for sale 340,000 Won
Inventory, December 31,2013 30,000 Won
Cost of sales 310,000 Won
Average exchange rate P 0.0520
Cost of sales in Philippine Peso P16,120
161. (a)
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 non-
monetary 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

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.
ANSWER KEY Page 102

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.

Advance Accounting
170. (b)
The goodwill at the date of acquisition is PI00,000 (400,000 baht x PI I 4 baht). At the year-
end 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).
ANSWER KEY Page 104

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:

Exchange In Philippine
InEUR Rate Peso
Sales 10,000 P69.50 (A) P695,000
Cost of sales (Schedule 1) 5,200 69.50 (A) 361,400
Gross profit 4,800 333,600
Operating expenses 1,000 69.50 (A) 69,500
Total comprehensive income 3,800 P264,100
Schedule 1:
Purchases 1,000 EUR
Shipments from Manila 5,000
Ending inventory (800)
Cost of sales 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.

Advance Accounting
175. (b)
Share capital (400 x 300/100) 1,200
Retained earnings, December 31, 2008 (balancing figure) 2,750
Noncurrent liabilities 500
Current liabilities , 700
Total Liabilities and Equity [same with total Assets
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 P3,150.00
Inventory (2,700x300/270) xP 1.75 5,250.00
Cash: 350 x PI .75 _ 612.50
Total Assets P9,012.50
Equity and Liabilities -
Share capital (400x300/100) xPl.75 PZ100.00
Retained earnings, December 31,2011 (balancing figure) ... 4,812.50
Noncurrent liabilities: 500 x PI .75 875.00
Current liabilities: 700 x PI .75 1,225.00
Total Liabilities and Equity (same with Total Assets) 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.
ANSWER KEY Page 106

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)

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)
method is appropriate. All assets (including inventory) are translated at the current
exchange rate [100,000 x P. 17].
ANSWER KEY Page 108

190. (C)
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)
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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PRACTICAL ACCOUNTING 2

THEORY & PRACTICE

Accounting for Foreign Currency Transactions, Foreign Currency Financial Statements

Foreign Currency Transactions - Lecture Page 1

Foreign Currency Transactions - Lecture Page 2

II. Foreign Currency Financial Statements Translation - PAS No. 2 (Revised)

Functional Currency versus Presentation Currency

Foreign Currency Transactions - Lecture Page 3

not Integral to the operations of the parent)

Foreign Currency Transactions - Lecture Page 4

Beginning retained earnings is set equal to the ending balance of lastyear

 Resulting difference (remeasurement gain or loss) should be reported as profit or loss

Goodwill arising from the Acquisition of Subsidiaries

II Objective of PAS No. 2?

Restatement of Financial Statements

Foreign Currency Transactions - Lecture Page 5

Historical Cost Financial Statements

Functional Currency is the Currency of a Hyperinflationary Economy

Foreign Currency Transactions - Lecture Page 6

Foreign Currency Transactions – MCQ Theory Page 7

Foreign Currency Transactions – MCQ Theory Page 8

Foreign Currency Transactions – MCQ Theory Page 9

Foreign Currency Transactions – MCQ Theory Page 10

Foreign Currency Transactions – MCQ Theory Page 11

33. Which of the following is not a derivative?

Foreign Currency Transactions – MCQ Theory Page 12

Foreign Currency Transactions – MCQ Theory Page 13

Foreign Currency Transactions – MCQ Problems Page 14

Foreign Currency Transactions – MCQ Problems Page 15

Foreign Currency Transactions – MCQ Problems Page 16

Foreign Currency Transactions – MCQ Problems Page 17

Transaction Gains & Losses

November 15,2011 P.4955

Foreign Currency Transactions – MCQ Problems Page 18

Foreign Currency Transactions – MCQ Problems Page 19

Purchase & Borrowing

Foreign Currency Transactions – MCQ Problems Page 20

Foreign Currency Transactions – MCQ Problems Page 21

After Balance Sheet Date

Foreign Currency Transactions – MCQ Problems Page 22

Total Forex Gain (Loss)

Foreign Currency Transactions – MCQ Problems Page 23

At Balance Sheet Date & After Balance Sheet Date

Foreign Currency Transactions – MCQ Problems Page 24

Foreign Currency Transactions – MCQ Problems Page 25

Foreign Currency Transactions – MCQ Problems Page 26

Realized Foreign Exchange Gain/Loss

Foreign Currency Transactions – MCQ Problems Page 27

Foreign Currency Transactions – MCQ Problems Page 28

Foreign Currency Transactions – MCQ Problems Page 29

Foreign Currency Transactions – MCQ Problems Page 30

Questions 1 thru 3 are based on the following: Dayag 2013

Foreign Currency Transactions – MCQ Problems Page 31

Questions 1 & 2 are based on the following: Dayag 2013

Foreign Currency Transactions – MCQ Problems Page 32

Questions 1 & 2 are based on the following: Dayag 2013

Foreign Currency Transactions – MCQ Problems Page 33

Questions 1 thru 4 are based on the following: Dayag 2013

Foreign Currency Transactions – MCQ Problems Page 34