Baliwag Polytechnic College

Dalubhasaan Kong Mahal

Institute of Business and Accountancy
BSA02 – Integrated Accounting Course (AFAR) RAA Hipolito, CPA
FOREIGN CURRENCY – TRANSACTION AND TRANSLATION

Problem I (Importing transaction – Exposed liability position)

On September 1, 2020, A Company, a Philippine based company, ordered 1,000 units of inventory from a
US Corporation for $25,000. The inventory was shipped and invoiced to A Company on December 1, 2020
to be paid on February 1, 2021. A’s fiscal year end is December 31. Assume that A did not engage in any
form of hedging activity. The following are the spot rates for U.S. Dollars at various times are as follows:
Buying Spot Rates Selling Spot Rates 12/1
Inventory 1,007,500
September 1, 2020 ₱38.90 ₱40.10 A/P 1,007,500
December 1, 2020 40.00 40.30 12/31
Loss 13,7500
December 31, 2020 40.60 40.85 A/P 13,750
February 1, 2021 40.45 40.65 2/1
A/P 1,016,250
Cash 1,011,250
1. How much is the ForEx gain (loss) on December 31, 2020? Gain 5,000

a. (6,250) b. (13,750) c. (15,000) d. (18,750)

2. How much is the outstanding accounts payable as of December 31, 2020?

a. 1,015,000 b. 1,016,250 c. 1,021,250 d. 1,035,000

3. How much is the ForEx gain (loss) on February 1, 2021?

a. 3,750 b. 5,000 c. (3,750) d. (5,000)

4. How much is the net ForEx gain (loss)?

a. 8,750 b. 11,250 c. (8,750) d. (11,250)

Problem II (Exporting transactions – Exposed asset position)

On November 1, 2020, B Company, a Philippine based Company, received an order of 1,500 units of inventory
from G Company, a U.S. based Company for $50,000. The inventory was shipped by B Company and billed
G Company on December 1, 2020. B Company received the customer remittance in full on March 2, 2021.
B’s fiscal year end is December 31. Assume that B did not engage in any form of hedging activity.

The following are the spot rates for U.S. Dollars at various times:
Buying Spot Rates Selling Spot Rates
November 1, 2020 ₱39.90 ₱40.10
December 1, 2020 40.00 40.20
December 31, 2020 40.60 40.85
March 2, 2021 40.40 40.70

1. How much is the ForEx gain (loss) on December 31, 2020?

a. 30,000 b. 32,500 c. 35,000 d. 37,500

2. How much is the outstanding accounts receivable as of December 31, 2020?

a. 2,030,000 b. 2,042,500 c. 2,060,000 d. 2,075,000

3. How much is the ForEx gain (loss) on March 2, 2021?

a. 7,500 b. 10,000 c. (7,500) d. (10,000)

4. How much is the Net ForEx gain (loss)?

a. 20,000 b. 25,000 c. (20,000) d. (25,000)

Problem III (Speculation – to buy currency)

On November 1, 2020, C Corporation entered into forward exchange contracts to purchase U.S. $20,000 in
90 days for delivery on February 1, 2021. The fiscal year ended for C Corporation is December 31. The
exchange rates available on various dates are as follows:

AFAR 212202_10 Page 1 of 5

 Baliwag Polytechnic College
Dalubhasaan Kong Mahal
Institute of Business and Accountancy
BSA02 – Integrated Accounting Course (AFAR) RAA Hipolito, CPA
11/1
November 1, 2020 December 31, 2020 February 1, 2021 A/R 804,000
A/P 804,000
Spot rate 40.00 40.25 40.40 12/31
A/R 3,000
30-day forward rate 40.10 40.35 40.50 Gain 3,000
60-day forward rate 40.15 40.40 40.70
2/1
Cash 808,000
90-day forward rate 40.20 40.45 40.65 Gain 1,000
A/R 807,000

A/P 804,000
1. How much is the ForEx gain (loss) on December 31, 2020? Cash 804,000
a. 3,000 b. 4,000 c. (3,000) d. (4,000)

2. How much is the foreign currency receivable as of December 31, 2020?

a. 804,000 b. 805,000 c. 807,000 d. 808,000

3. How much is the peso payable balance as of December 31, 2020?

a. 804,000 b. 805,000 c. 807,000 d. 808,000

4. How much is the ForEx gain (loss) on February 1, 2021?

a. 1,000 b. 2,000 c. (1,000) d. (2,000)

5. How much is the Net ForEx gain (loss)?

a. 3,000 b. 4,000 c. (3,000) d. (4,000)

Problem IV (Speculation – To sell currency)

On December 1, 2020, P Corporation entered into forward exchange contracts for speculative purposes in
anticipation for a gain to sell U.S. $10,000 in 90 days for delivery on March 1, 2021 for 40.25. The fiscal
year-end for P Corporation is December 31. The exchange rates available on various dates are as follows:
December 1, 2020 December 31, 2020 March 1, 2021 12/1
Spot rate 40.00 40.25 40.40 A/R 402,500
A/P 402,500
30-day forward rate 40.10 40.35 40.50 12/31
Loss 1,500
60-day forward rate 40.15 40.40 40.70 A/P 1,500

90-day forward rate 40.20 40.45 40.65

120-day forward rate 40.30 40.50 40.70

1. How much is the ForEx gain (loss) on December 31, 2020?

a. 1,000 b. 1,500 c. (1,000) d. (1,500)

2. How much is the ForEx gain (loss) on March 1, 2021?

a. 0 b. 500 c. (500) d. (1,000)

3. How much is the Peso receivable on March 1, 2021 prior to collection?

a. 402,500 b. 403,000 c. 403,500 d. 404,000

4. How much is the Foreign Currency Payable on March 1, 2021 prior to settlement?
a. 402,500 b. 403,000 c. 403,500 d. 404,000

5. How much is the Net ForEx gain (loss)?

a. 1,000 b. 1,500 c. (1,000) d. (1,500)

Problem V (Forward Contracts – Hedging an Exposed Liability)

OCDC Enterprise purchases inventory from a foreign supplier on September 1, 2020 with payment due on
December 31, 2020. The transaction will be settled in 1,000,000 foreign currency units (FCUs). Management
of OCDC immediately enters into a forward contract to hedge this transaction. The relevant exchange rates
and forward contract fair values are as follows:
Spot rate Forward rate – Nov. 1 Forward Contract – Fair value
Sept. 1 1.120 1.124 0
Nov. 1 1.129 1.128 4,000
Dec. 31 1.140 1.140 16,000

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 Baliwag Polytechnic College
Dalubhasaan Kong Mahal
Institute of Business and Accountancy
BSA02 – Integrated Accounting Course (AFAR) RAA Hipolito, CPA
1. What is the amount of exchange gain (loss) recognized with respect to the accounts payable account
on November 1, 2020?
a. 4,000 b. 9,000 c. (4,000) d. (9,000)

2. What is the amount of exchange gain (loss) recognized with respect to Forward Contract on November
1, 2020?
a. 4,000 b. 9,000 c. (4,000) d. (9,000)

3. What is the amount of exchange gain (loss) recognized with respect to Forward Contract on December
31, 2020?
a. 4,000 b. 9,000 c. 12,000 d. 18,000

4. How much is the net gain (loss) on November 1, 2020?

a. 1,000 b. 5,000 c. (1,000) d. (5,000)

5. How much is the net gain (loss) on December 31, 2020?

a. 1,000 b. 5,000 c. (1,000) d. (5,000)

6. How much is the outstanding accounts payable as of November 1, 2020?

a. 1,120,000 b. 1,124,000 c. 1,128,000 d. 1,129,000

7. How much is the outstanding peso-payable as of November 1, 2020?

a. 1,120,000 b. 1,124,000 c. 1,128,000 d. 1,129,000

8. How much is the outstanding FC-receivable as of December 31, 2020?

a. 1,120,000 b. 1,128,000 c. 1,129,000 d. 1,140,000

Problem VI (Forward Contract – Hedging a Firm Commitment as fair value hedge)

On September 30, 2020, C ordered machinery from a Japanese firm. The purchase order is non-cancelable.
The purchase price is 5,000,000 yens with delivery and payment to be on March 31, 2021. On September
30, 2020, C entered into forward contract to buy 5,000,000 yens on March 31, 2021. On March 31, 2021,
the machinery was delivered.
Sept. 30, 2020 Dec. 31, 2020 Mar. 31, 2021
Spot rate 0.38 0.42 0.46
Forward rate 0.39 0.44

1. The December 31, 2020 profit or loss, net foreign exchange gain (loss) (Forward contract and
commitment)?
a. 0 b. 50,000 c. 100,000 d. 250,000

2. The March 31, 2021 profit or loss, foreign exchange gain (loss) (Forward contract)?
a. 0 b. 50,000 c. 100,000 d. (100,000)

3. The March 31, 2021 foreign exchange gain (loss) on firm commitment to be presented in OCI?
a. 0 b. 50,000 c. 100,000 d. (100,000)

4. What is the firm commitment account balance as of December 31, 2020?

a. 250,000 Asset c. 350,000 Asset
b. 250,000 Liability d. 350,000 Liability

5. The fair value of the forward contract on December 31, 2020?

a. 0 b. 250,000 c. (250,000) d. (350,000)

6. What is the value of the equipment on September 1, 2020?

a. 0 b. 1,900,000 c. 1,950,000 d. 2,300,000

7. What is the value of the equipment on March 31, 2021?

a. 0 b. 1,900,000 c. 1,950,000 d. 2,300,000
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 Baliwag Polytechnic College
Dalubhasaan Kong Mahal
Institute of Business and Accountancy
BSA02 – Integrated Accounting Course (AFAR) RAA Hipolito, CPA
Problem VII (Balance Sheet Accounts)
The foreign subsidiary of D Corporation has certain balance sheet accounts on December 31, 2020.
Information relating to these accounts in Philippine peso as follows:
Translated at current rates Translated at historical rates
Accounts receivable 180,000 200,000
Prepaid insurance 90,000 100,000
Marketable securities, at cost 65,000 75,000
Inventories 500,000 530,000
Patent 80,000 85,000
Equipment 200,000 220,000
Goodwill 80,000 85,000

1. What total amount should be included in D’s December 31, 2020 consolidated balance sheet for the
above accounts if the Subsidiary’s foreign operations operate independently in economic and financial
matters (or not integral part to the operation of parent)? (closing rate method under PAS 21)
a. 1,195,000 b. 1,255,000 c. 1,275,000 d. 1,295,000

2. What total amount should be included in D’s December 31, 2020 consolidated balance sheet for the
above accounts if the Subsidiary’s foreign operation is integral part to the operation of parent? (temporal
method)
a. 1,195,000 b. 1,255,000 c. 1,275,000 d. 1,295,000

Problem VIII
A foreign subsidiary of AJ Corp. (a Philippine based firm) has certain balance sheet accounts on December
31, 2020. The functional currency of the subsidiary is US Dollar and currency of record is the US Dollar (as
LCU) and the parent’s books are kept in Peso. Information relating to these accounts is as follows:

Accounts receivable 3,700 USD

Inventories 8,400 USD
Prepaid insurance (acquired on 01/01/20) 400 USD
Land (purchase on 01/01/18) 400 USD

Exchange rates at various dates:

January 1, 2018 1 LCU (USD) : ₱40
January 1, 2020 1 LCU (USD) : ₱48
December 31, 2020 1 LCU (USD) : ₱50
Average rate for year ended 2020 1 LCU (USD) : ₱45

What amount should be included as total assets on AJ’s balance sheet on December 31, 2020 as the result
of the above information applying closing rate method under PAS 21?
a. 598,200 b. 645,000 c. 770,000 d. 785,000

Problem IX
On January 1, 2020, SM Company formed a foreign branch. The branch purchased merchandise at a cost of
720,000 local currency units (LCU) on February 15, 2020. The purchase was equivalent to ₱180,000 on this
date. The branch’s inventory at December 31, 2020, consisted solely of merchandise purchased on February
15, 2020, and amounted to 240,000 LCU. The exchange rate was 6 LCU for ₱1 on December 31, 2020, and
the average rate of exchange was 5 LCU for ₱1 for 2018. Assume that the LCU is the functional currency of
the branch.

AFAR 212202_10 Page 4 of 5

 Baliwag Polytechnic College
Dalubhasaan Kong Mahal
Institute of Business and Accountancy
BSA02 – Integrated Accounting Course (AFAR) RAA Hipolito, CPA
In SM’s December 31, 2020 balance sheet, the branch inventory balance of 240,000 LCU should be translated
to Philippine Peso at (closing rate method under PAS 21)
a. 40,000 b. 48,000 c. 60,000 d. 84,000

Problem X
A wholly owned subsidiary of T Inc. has certain expense accounts for the year ended December 31, 2020
state in local currency units (LCU) as follows:
LCU
Depreciation of equipment (related assets were purchased Jan. 1, 2018) 120,000
Provision for doubtful accounts 80,000
Rent 200,000

The exchange rates at various dates are as follows:

Peso equivalent of 1 LCU
December 31, 2020 0.40
Average for year ended 12/31/20 0.44
January 1, 2018 0.50

1. Assume that the LCU is the subsidiary’s functional currency and that the charges to the expense accounts
occurred approximately evenly during the year. What total Peso amount should be included in T’s 2020
consolidated income statement to reflect these expenses? (Current rate method under PAS 21)
a. 160,000 b. 168,000 c. 176,000 d. 183,200

2. The subsidiary’s operations were an extension of the parent company’s operations, thus, the functional
currency is Peso. What total dollar amount should be included in T’s income statement to reflect the
above expenses for the year ended December 31, 2020? (Temporal method)
a. 160,000 b. 168,000 c. 176,000 d. 183,200

Problem XI
S Enterprise, a subsidiary of J Enterprises based in Philippines, reported the following information at the end
of its first year of operations (all in yens):
Assets 110,000,000
Expenses 41,000,000
Liabilities 97,500,000
Capital stock 5,500,000
Revenues 48,000,000

Relevant exchange rates are as follows:

On date of subsidiary stock was purchased ₱0.085
Average rate for the year 0.078
At year end 0.075

As a result of the translation process, what amount is recorded on the financial statements as the translation
adjustment?
a. 21,000 debit adjustment c. 21,000 credit adjustment
b. 76,000 debit adjustment d. 76,000 credit adjustment

- End -

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