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Afar FC

1. This document provides problems related to advanced financial accounting and reporting of foreign currency transactions. It discusses foreign currency gains and losses, hedging of available-for-sale securities and net investments in foreign operations, and accounting for forward exchange contracts. 2. Problem V specifically involves calculating current assets and liabilities, foreign exchange gains and losses from forward contracts for speculation and hedging purposes using various exchange rates, for the financial statements of Steve Corporation at December 31, 2019. 3. The problem provides forward contract receivables and payables in various currencies, applicable exchange rates, and asks to compute total current assets and liabilities as well as foreign exchange gains and losses for speculation, changes in fair

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Ryan Julius Rullan
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211 views2 pages

Afar FC

1. This document provides problems related to advanced financial accounting and reporting of foreign currency transactions. It discusses foreign currency gains and losses, hedging of available-for-sale securities and net investments in foreign operations, and accounting for forward exchange contracts. 2. Problem V specifically involves calculating current assets and liabilities, foreign exchange gains and losses from forward contracts for speculation and hedging purposes using various exchange rates, for the financial statements of Steve Corporation at December 31, 2019. 3. The problem provides forward contract receivables and payables in various currencies, applicable exchange rates, and asks to compute total current assets and liabilities as well as foreign exchange gains and losses for speculation, changes in fair

Uploaded by

Ryan Julius Rullan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Advanced Financial Accounting and Reporting

Foreign Currency Transactions


April 22-23, 2019

Problem I

Shaira Trading purchases goods from Lea, a company based on France for 1,200,000 €. The exchange rate at this time is P1=€12.50.
X pays 22 days later when the prevailing exchange rate is P1 = €16.

How much is the foreign currency gain/loss on the books of Lea?

Problem II

On December 1, 2019, Sherilyn Corporation acquired 6,900 shares of Gabriel Company at a cost of P42 per share. Sherilyn classifies
them as available-for-sale securities. On this same date, Sherilyn decides to hedge against a possible decline in the value of the
securities by purchasing, at a cost of P17,850, an at-the-money put option to sell the 6,900 shares. The option expires on April 1,
2020. The fair values of the investment and the options follow:

12/1/19 12/31/19 4/1/20


Gabriel Company shares per share P42 P 39.75 P 35.25
Put option, market value 23,100 46,575

1. Compute for the gain/loss on option contract due to change in time value on December 31, 2019, if split accounting is used
in the assessment of hedge effectiveness.
2. Compute for the 2020 net gain/loss in the hedging activity.

Problem III

Eddezon Corporation of Makati paid P1,128,750 for a 35% interest in beverly Company of Taiwan on January 1, 2019, when
BEVERLY’s net assets totaled P375,000 NT Dollar and the exchange rate for NT Dollar was P8.60. A summary of changes in beverly’s
net assets during 2019 is as follows:

NT Dollar Exchange rates


Net assets, January 1 375,000 P8.60
Net income for 2019 75,000 8.55
Dividends paid for 2019 25,000 8.54

Eddezon Corporation anticipated a strengthening of the Philippine peso against the NT Dollar during the last half of 2019, and it
borrowed 150,000 NT Dollar from a Taiwanese bank for one year at 10% interest on July 1, 2019 to hedge its net investment in
beverly. The loan was made when the exchange rate for NT Dollar was P8.55. The loan was denominated in NT Dollar and the
current exchange rate at December 31, 2019 was P8.50.

Compute for the other comprehensive income—translation adjustment presented in equity in 2019 as a result of hedging.

Problem IV

Jeraldine Corp. owns a subsidiary in Singapore whose statement of financial position in Singapore Dollars for the last two years
follow:
12/31/2019 12/31/2020
Assets
Cash and cash equivalents S$ 450,000 S$ 375,000
Receivables 1,837,500 2,212,500
Inventory 2,400,000 2,550,000
Property and equipment, net 3,825,000 3,450,000
Total assets S$ 8,512,500 S$ 8,587,500
Liabilities and equity
Accounts payable S$ 825,000 S$ 1,125,000
Long-term debt 4,837,500 4,275,000
Common stock 1,725,000 1,725,000
Retained earnings 1,125,000 1,462,500
Total liabilities and equity S$ 8,512,500 S$ 8,587,500

Relevant exchange rates are:


1/1/19 S$ 1 = P45.00
12/31/19 S$ 1 = P42.50
12/31/20 S$ 1 = P47.50
Average 2019 S$ 1 = P43.75
9/12/2019 S$ 1 = P40.00

Jeraldine Corp. formed the subsidiary on January 1, 2019. Income of the subsidiary was earned evenly throughout the years and
the subsidiary declared dividends worth S$ 75,000 on September 12, 2019 and none were declared during 2020.

How much is the cumulative translation adjustment for 2020?


Advanced Financial Accounting and Reporting
Foreign Currency Transactions
April 22-23, 2019

Problem V

The unadjusted accounts of Steve Corporation of the Philippines at December 31, 2019 that relate to its forward contracts are
summarized as follows:

 Forward contract payable to BPI in Philippine pesos amounting to P133,000, for the Changi Corporation hedge
 Forward contract receivable from Metro Bank in Philippine pesos amounting to P294,000, intended to hedge a foreign currency
commitment to KBS Co. of Korea due in 90 days from December 1, 2019.
 Accounts payable to Changi Corporation of Singapore amounting to P127,750, billing was for P10,000,000 Singapore dollars
worth of merchandise.
 Forward contract receivable from BDO in Thailand Baht amounting to P227,500 for speculation to purchase 200,000 baht in
90 days from December 1, 2019.
 Forward contract payable to Metro Bank in Korean Won amounting to P294,000, intended to hedge a 100,000 Won sales
commitment with KBS Co. of Korea.
 Forward contract receivable from BPI in Singapore dollars amounting to P133,000, which is to hedge payable to Changi
Corporation for 120 days from November 2, 2019.
 Forward contract payable to BDO in Philippine pesos amounting to P227,500, for speculation in Thailand Baht.

Direct exchange rates and forward rates at December 31, 2019 were as follows:

Singapore
Baht Won
dollars
Closing selling rate 1.1200 0.013125 3.00125
Closing buying rate 1.1000 0.013020 3.00100
30-day futures 1.1550 0.013300 2.97500
60-day futures 1.1725 0.013475 2.95750
90-day futures 1.1900 0.013650 2.94000
120-day futures 1.2075 0.013825 2.92250

Compute for the following (at December 31, 2019):

1. Total current assets


2. Total current liabilities
3. ForEx gain(loss) from forward contract for speculation
4. ForEx gain(loss) from change in fair value of the underlying sales commitment
5. ForEx gain(loss) from the hedged item in an exposed liability position

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