- Chapter 10

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 quofe measures how much of the domestic currency must be exchanged to receive one unit
of a foreign currency. (ie. Peso: Foreign Currency) Indirect quote measure how many units of a foreign
currency will be received for one unit of domestic currency. (le. Foreign Currency: Peso)

2. A currency may either strengthen (gain) or weaken (loss) 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, of 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 lake place.

a. The agreement to exchange currencies of 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.

1. Accounting for Foreign Currency Transactions-PAS No. 21 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 carried at historical cast should be reported using the exchange rate of the date of
the transaction.

-Non-monetary items carried at fair value should be reported of the rate that existed when the fairs
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 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 of 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. 21 (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 hyperintiationary 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 (for 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, l.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 losses) 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. cost and fixed deposits, receivables, payables and
mast liabilities) shall be translated (remeasured) using the closing rate
 Non-monetary items at historical cost or caried 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 of 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' equally 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 last year
 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 for remeasured using historical rate (either of the date 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, on 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..."

III. Objective of PAS No. 29

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

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 of the balance sheet date, such as net realizable value and market value, so
they are not restated. All other non-monetary assets and liabilities are restated.

4. All Items in the income statement are expressed in terms of the measuring unit current at the
balance sheet date. Therefore all amounts need to be restated by applying the change in the
general price index from the dates when the items of income and

5. expenses were initially recorded in the financial statements. A gain or loss on the net
monetary position is included in net income. it should be disclosed separately.

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 (le., 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 (le, 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
(le... not adjusted for subsequent changes in the price level or subsequent changes in exchange
rates).
 MULTIPLE CHOICE QUESTIONS

Foreign Currency Transactions

1. On September 9, 20x5, Pishot Inc, accepted a noncancellable merchandise sales order from a
Japanese firm. The contract price was 100,000 yens. The merchandise was delivered on December 14,
20x5. The invoice was dated December 11, 20x5, the shipping date (FOB shipping point). Full payment
was received on January 22, 20x6. The spot direct exchange rates for the Japanese yens on the
respective dates are as follows:

September 9, December 11, December 14, December 31, January 22

20x5 20x5 20x5 20x5 20x5
P.75 P.78 P.77 P.23 P.25

What is the reportable sales amount in the 20x5 income statement?

α. P73,000 b. 75,000 c. P77,000 d. 78,000

Solution:

(d) Reportable sales amount in the 20x5 income statement: 100,000 yens x P.78 = P78,000 (d), the
historical rate on 12/31/x5 or spat rate on the date of transaction (12/11/x5).

Title passed on 12/11/x5, 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).

2. Using the same information in No. 1, what is the reportable foreign exchange gain or loss amount in
the 20x5 income statement?

a. P2.000 gain b. 4,000 loss C. P5,000 loss d. 5,000 gain

Solution:

(c) Foreign exchange loss for 20x5: 100,000 yens x P.05 P5,000 (C)

"This is the decrease in the direct exchange rate between 12/11/x5 and 12/31/x5 (P.78P.73 P.05).

3. Using the same information in No. 1, what is the reported value of the receivable from the customer
at December 31, 20x52

a. P73.000 b. 75,000 C P77,000 d. 78,000

Solution:

(a) Reportable value of the receivable from the foreign customer of 12/31/x5: 100.000 yens x P.73
P73,000 (a), the spot rate on 12/31/x5 or current rate on 12/31/x5.
4. On September 3, 20x5, Connelly placed a noncancellable 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, 20x5. The invoice was dated November 13, 20x5, the shipping date (FOB shipping point).
The vendor was paid on January 7, 20x6. The spot direct exchange rates for the Japanese yens on the
respective dates are as follows:

September 3, November 13, December 23 December 31, January 7.

20x5 20x5 20x5 20x5 20x5
P.20 P.21 P.22 P.23 P.24

What amount is the capitalizable cost of the equipment?

a. P200,000 b. 210.000 C. P220.000 d. 230,000

Solution:

(b)

Capitalizable cost of the equipment: 1,000.000 yens x P.21 P210.000 (b), the historical rate on 12/31/x5.
or spot rate on the date of transaction [11/13/5)

Title passed on 11/13/x5, 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).

5. What is the reportable foreign exchange gain or loss amount in Connelly's 20x5 income statement?

α. P10,000 loss c. P30,000 loss

b. 20,000 gain d. 20,000 loss
Solution:

d) Foreign exchange loss for 20x5: 1,000,000 yens x P.02 - P20,000 (d)

"This is the increase in the direct exchange rate between 11/13/x5 and 12/31/16 923- P.21 P.02).

6. What is the reported value of the payable to the vendor at December 31, 20x52

α. P200,000 C. P220,000
b. 210,000 d. 230.000
Solution:

(d) Reportable value of the payable to the foreign vendor at 12/31/x5: 1,000,000 yens x P23 P230,000
(d), the spot rate on 12/31/x5 or current rate on 12/31/x5
7. On April 1. 20x5. 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, 20x5: P1 = 132 rupiah

April 30, 20x5: P1 = 130 rupiah

What is the cost of the oil?

α. 132 million rupiah c. P31.85 billion

b. 130 million rupiah d. P 1.32 billion
Solution:

(c) Cost of the oit: 10,0000 barrels x P3,185 P31,850,000,000 (c), the historical rate on 12/31/ x5 or spot
rate on the date of transaction.

8. Domestic Company has an accounts payable in the amount of 10,000 Bahrain Dinar on its books on
October 1, 20x5. This account was unpaid at the end of the fiscal year, October 31, 20x5. The spot rate
for the dinar was:

October 1, 20x5: 1 Dinar = P131

October 31, 20x5: 1 Dinar P133

On October 31, 20x5. 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.
Solution:

(b)

The accounts payable on October 31, 20x5 (end of fiscal year amounted to P1,330,000

(10,000 dinar x P133). 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 fin which account

payable and accounts receivable are a monetary item) should be reported using the

closing rate (current rate of balance sheet date).

9. During July 20x6. Precious Corporation had the following transactions with foreign businesses:

Billing Exchange
Rate
Date Nature of Transaction Currency (Direct)
Vendor A:

7/1/x6 Imported merchandise costing 100,000

rupees from Pakistan wholesaler Rupee P.82
7/10/x6 Paid 40% of amount owed……………. 83
7/31/x6 Paid remaining amount owed.......... 78

Customer A:

7/15/x6 Sold merchandise for 50,000 pound to

Syrian wholesaler………………………………. Pound* P.95
7/20/x6 Received 20% payment……………………… .90
7/30/x6 Received remaining amount owed……. .91

*Syrian pound.

What is the capitalized cost of inventory purchase from the Pakistan wholesaler?

a. P 0 c. P82,000
b. 78,000 83,000
Solution:

(c) Cost of inventory purchase: 100.000 rupees x P.82 (spot rate on the date of transaction PB2.000. Refer
to Nos. 1. 4, and 7 for further discussions.

10. Using the same information in No. 9, what is the foreign exchange gain or loss on July 10, 20x6
transaction arising from the Pakistan wholesaler?

a. P1,000 loss c. P400 gain

b. 1,000 gain d. 400 loss
Solution:

(d) The settlement date for 40% of the amount owed (settled portion of the payable

results in a foreign exchange loss of P400 [(P.83-2.82) 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/xó because an intervening financial reporting date is not involved.

11. Using the same information in No. 9, what is the foreign exchange gain or loss on July 31, 20x6
transaction arising from the Pakistan wholesaler?
 α. P4,000 gain c. P2,400 loss
b. 4,000 loss d. 2,400 gain
Solution:

(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)

12. Using the same information in No. 9, what is the reportable sales amount in the income statement in
20x6?

α. P38,000 c. P45,500
b. 45,000 d. 47,500
Solution:

(d) Reportable sales: 50,000 Syrian pounds x P.95 (the spot rate on the date of transaction P47,500. Refer
to Nos. 1, 4, and 7 for further discussions.

13. Using the same information in No. 9, what is the foreign exchange gain or loss on July 20, 20x6
transaction arising from the Syrian wholesaler?

α. P500 gain c. P2,500 gain

b. 500 loss d. 2.500 loss
Solution:

(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 ((P.95-P.90) 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/x6
because an intervening financial reporting date is not Involved.

14. Using the same information in No. 9, what is the foreign exchange gain or loss on July 30, 20x6
transaction arising from the Syrian wholesaler?

a. P1,600 loss c. P2,000 gain

b. 1,600 gain d. 2.000 loss
Solution:

(a) The settlement date for remaining 80% of the amount to be received results in a foreign exchange
loss of P1,600 ((P.95P.91) x 40,000 pounds (80% x 50,000 pounds))

15. During June and July 20x6. Estrella (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:
6/15/16 Imported merchandise costing 10,000
euros from French manufacturer. Euros P65
7/15/16 Paid entire amount owed................. 62

Customer A:

6/20/x6 Sold merchandise for 20,000 real to

a Brazilian retailer…………………………………………. Real P23
7/15/x6 Received full payment…………………………………………. 22

On June 30, 20x6, 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, 20x6 arising from the French manufacturer?

a. P30.000 gain c. P10,000 gain

b. 20.000 gain d. 10,000 loss
Solution:

(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 Itemi should be
reported using the closing rate (current rate at balance sheet date).

16. Using the same information in No. 15, what is the foreign exchange gain or loss on July 15, 20x6
transaction arising from the French manufacturer?

α. P10,000 gain c. P20,000 gain

b. 30,000 gain d. 20,000 loss
Solution:

c) On the settlement date, the transaction results to foreign exchange gain of P20,000 [(P64-62) x 10.000
euros)

17. Using the same information in No. 15., what is the foreign exchange gain or loss on June 30, 20x6
arising from the Brazilian retailer?

a. P20,000 loss C. P8,000 gain

b. 12,000 loss d. 8,000 loss
Solution:

(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 of 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 receivable is a monetary item) should be
reported using the closing rate (current rate at balance sheet date).
18. Using the same information in No. 15, what is the foreign gain or loss on July 15, 20x6 transaction
arising from the Brazilian retailer?

α. P12,000 loss c. P20,000 loss

b. 12,000 gain d. 8,000 loss
Solution:

(α) On the settlement date, the transaction results to foreign exchange loss of P12,000 [[P22.60-P22) x
20,000 real]

19. An entity purchases plant from a foreign supplier for 3 million baht on January 31, 20x6, when the
exchange rate was 2 baht = P1. At the entity's year-end of March 31, 20x6, the amount has not been
paid. The closing rate was 1.5 baht = P1. The entity's functional currency is the peso. Which of the
following statements is correct?

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.
Solution:

(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 spat rate at balance sheet date) and non-monetary items such as plant will be at
historical rate. Refer to Nos. 1, 4, & 7 for further discussions. The functional currency is

20. Juan, a Philippine Corporation, bought inventory items from a supplier in Germany on November 5,
20x6 for 100.000 marks, when the spot rate was P21. At Juan's December 31, 20x6, year end, the spot
rate was P20.5. On January 15, 20x7, 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 20x6 and 20x7 as foreign exchange
transaction gain or (loss)?

20x6 20x7 20x6 20x7

α. P(50,000) P40,000 c. P0 P10,000
b. 50,000 (40,000) d. 10,000 0
(AICPA Modified)

Solution:

(b)

Date of transaction: 11/5/20x6…………………. P21.0

Balance sheet date: 12/31/20x6................... P20.5 P.5 gain x 100,000 = P50,000 gain
Date of settlement: 2/1/20x7……………………. P20.9 P.4 loss x 100.000 = P40.000 loss

21. A Philippine firm has purchased, for 50,000 FCs, on electric generator from a foreign firm. The
exchange rates wree 1 FC P0.80 on the delivery date and 1 FC = P0.76 when the payable was paid. What
is the final recorded value if the tw-transaction method is used?
 α. P38,000 c. P42.000
b. P40,000 d. P50,000
Solution:

(b)

Date of transaction: 11/5/20x6…………………. P6.27

Balance sheet date: 12/31/20x6................... P6.00 P.27 loss x 250,000 = P67,500 loss
Date of settlement: 2/1/20x7……………………. P6.30 P.30 gain x 250,000 = P75,000 gain (b)

22. A Philippine manufacturer has sold computer services to a foreign firm and received 200,000 foreign
currency units (FCs). The exchange rates were 1 FC = P.75 on the date of the sale and 1 FC = P.80 when
the receivable was settled. On the transaction date, the settlement exchange rte is estimated to be IFC =
P.72. By the settlement date, what is the total exchange gain or loss recorded for the transaction if the
two-transaction method is used?

a. P 10,000 exchange gain c. P 10,000 exchange loss

b. P 6,000 exchange loss d. No gain or loss
(AICPA)

Solution:

(b)

7/1/20x6 (date borrowed) P210,000

2/31/20x6 (balance sheet date) P240,000 P30,000 loss
7/1/20x7 (date of payment) P280,000 P40,000 loss (b)

23. On July 1, 20x6, Bato Company lent P120,000 to a foreign supplier, evidenced by an interest bearing
note due on July 1, 20x7. 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
P140,000 in the receivables section of Bato's December 31, 20x6 balance sheet. The note principal was
repaid to Bato on the July 1, 20x7 due date when the exchange rate was 8 LCU to P1. In its income
statement for the year ended December 31, 20x7, what amount should Bato include as a foreign
currency transaction gain or loss?

a. P0 c. P15,000 gain
b. 15,000 loss d. 35.000 loss
(AICPA)

Solution:

(d)

12/31/20x6: Balance sheet date……………………………………………………………………………………. P140,000

7/1/20x7: Date of Settlement. 840.00 LCU x P1/8 LCU………………………………………………….. 105,000
Foreign currency exchange transaction loss…………………………………………………………………... P 35,000

24. On September 1, 20x6, 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, 20x6, 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, 20x6, and
sold the 300.000 LCU for P105,000. In its income statement for the year ended December 31, 20x6,
Rosan should report a foreign exchange transaction gain of:

a. P 0 c. P5,000
b. 4.000 d. 9.000 (AICPA)
Solution:

(c)

When the sale is made on 10/15/20x6, Rasan would record a receivable and sales at P100,000 the peso
equivalent on that date.

Accounts receivable……………………………………………… 100,000

Sales………………………………………………………… 100,000

On 11/16/20x6. Rosan receives foreign currency worth P105,000. Since the receivable was recorded of
P100.000, a P5.000 gain must be recorded.

Foreign currency.................................................. 105,000

Accounts receivable…………………………….. 100,000
Foreign exchange gain…………………………. 5,000

The peso equivalent when the order was received on 9/1/20x6 (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.

25. Hunt Co. purchased merchandise for £300,000 from a vendor in London on November 30, 20x6.
Payment in British pounds was due on January 30, 20x7. The exchange rates to purchase one pound
were as follow:

November 30, December 31, January 30,

20x6 20x6 20x7
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)?

20x6 20x7 20x6 20x7

α. P33,000 P(150.000) c. P600,000 P300,000
b. (33,000) 150,000 d. (150,000) (36,000)
Solution:
(a)

Spot Rates
11/30/20x6: date of transaction........... P71.11
12/31/20x6: balance sheet date........... P71.00 P.11 gain x 300.000 = P33,000
1/20/20x7: date of settlement…………… P71.50 P.50 loss x 300,000 = P150,000

26. 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:

May 8 Spot Rate: P1.25

May 31 Spot Rate: P1.26
June 7 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. P1,639,344
Solution:

(a) (P1.25, spot rate on the date of transaction x 2,000,000 foreign currency units = P2,500,000.)

27. Using the same information in No. 26, how much foreign currency will it cost Brisco to finally pay the
payable on June 72?

α. P1,666,667 c. P2,520,000
b. P2,440,000 d. P2,400,000
Solution:

(d) (P1.20, spot rate on the date of settlement x 2.000.000 foreign currency units = P2,400,000)

28. 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 P1: 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: P 0 : Busit: P12,500 loss

b. Halika: P 12,500 loss; Busit: P.O.

c. Halika:P12,500 gain: Busit: PO

d. Halika: P 0: Busit: 12,500 gain

(Adapted)

Solution:
(c)

Halika (Phil. Co.): The Halika Trading Company (seller/exporter) is engaged in a 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
P12,500 ((P1-P.9875) x 1,000,000) should be recognized by Halika.

Busit (Thalland Co.): 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.

29. On November 15. 20x6. 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, 20x6. Celt paid the invoice on January 10, 20x7. The spot rates for yens on the respective
dates are as follows:

November 15, 20x6……………………………………………………………………………………. P.4955

December 10, 20x6……………………………………………………………………………………. .4875
December 31.20x6…………………………………………………………………………………….. .4675
January 10, 20x7………………………………………………………………………………………… .4475

In Celt's December 31.20x6 income statement, the foreign exchange gain is:

α. P9,600 c. P4,000
b. 8,000 d. 1,600 (AICPA)
Solution:

(c)

Date of transaction (shipment): 12/10/20x6…………………………………………………….. P .4875

Balance sheet date: 12/31/20x6………………………………………………………………………. .4675
Foreign currency exchange gain per yen………………………………………………………….. P .02
Multiplied by: Number of yens………………………………………………………………………… 200,000
Foreign currency exchange gain………………………………………………………………………. P 4,000

30. 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. 20x6 when the exchange rate was $1.00 = P43.00. At
December 31, 20x6, 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 = P45.00. 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. P1,620,000 P1,620,000
 b. P1,620,000 P1,548,000
c. P1,548,000 P1,548,000
d. P1,548,000 P1,620,000
(PhilCP)

Solution:

(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, 20x6):

Fixed Asset ($36,000 x P43)………………………………………….. 1,548,000
Accounts Payable………………………………………….. 1,548,000

Balance sheet date ( December 31, 20x6):

Foreign exchange loss ((P45-P45) x $36.000)………………… 72,000
Accounts Payable………………………………………….. 72,000

Fixed assets should be valued at P828.000, while creditor's accounts should be valued at P1,629,000
(P1,548,000P72.000) or the spot rate on balance sheet date

($36.000 x P45)

31. In October 20x6, 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 P2,970,000, the rate of exchange at the time the loan was obtained must have been:

α. $1.00=P44.00 c. $1.00=P46.00
b. $1.00=P45.00 d. $1.00=P50.00
(Adapted)

Solution:

(b)

Loan Payable on December 31, 20x6………………………………………………… P2,970,000

Divided by: Percent of Increase of
Dollar - Peso exchange rate………………………………………………….. 110%
Loan payable at the transaction date
October 20x6……………………………………………………………………….. P2,700,000
Divided by: Number of foreign
currencies still unpaid ($120.000/2)………………………………………… 60,000
Peso exchange rate against dollar……………………………………………………… P 45

32. On May 1, 20x6, the Manila Museum purchase an original Picasso's of drawing for 100,000 foreign
currencies (FCS), payable in 30 days. On May 1, the spot rate is P6.26 to 1 FC and the 30 day forward rate
is P6.50 per FC. On May, 30, when the bill is paid, the spot rate is P6.70 per FC. The cost of the drawing
should be recorded at:

a. P650,000 c. P626,000
b. 670,000 d. 15,974
(Adapted)

Solution:

(c)

The cost of Picasso drawing should be recorded oft P626.000 (P6.26 x $100,000 FC) 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.

33. On July 1, 20x6, Magnolia Company purchases 1,000 pounds of chocolate for 50.000 foreign
currencies (FCS), payable in 60 days. On July 1. a FC is worth P27.29; by August 30, the day of payment,
the FC is worth P27.00. The 60-day forward rate on July 1 is 1 FC = P28.00. Magnolia Company should
record the cost of the chocolate as:

a. P1,350,000 c. P1,400,000
b. 1,364,500 d. 1,832,000
(Adapted)

Solution:

(b)

The cost of chocolate should be recorded of P1,364,500 (P27.29 x 50.000 francs), valued at spot rate on
the date of transaction, Le. July 1

Refer to Nos. 1. 4, 7 and 32 for further discussions.

34. Pre Corporation purchases memory on March 15 from a foreign company for 6,500,000 FCs (foreign
currencies). Payment for the inventory occurs on May 15. The exchange rate is 1 FC = P.029 on March 15
and 1FC = P.025 on May 15. What is the credit to cash when Pre pays for the inventory on May 152

a. P 26,000 c. P188,000
b. 8162,000 d. 351.000
Solution:

(a)
The cost of equipment should be recorded at P828.000 (P23 x $36.000), valued of spot rate on the date
of transaction, le May 31, 20x6

Refer to Nos. 1. 4, 7 and 32 for further discussions.

35. Century Buildings Company, a parent company of a group of companies, acquired machinery for US
50,000 foreign currencies (FCS) on October 31. 20x6 when the peso/FC rate was P54 (average rate, P53),
the liability is to be paid six-months after. By the end of the year, the peso/FC 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:

α. P2.650.000 c. P2,850,000
b. 2,700,000 d. 2,000,000
Solution:

(b)

The machinery should be valued at the spot rate on the date of transaction, P2,700,000 (P50,000 x P54).
The difference between the spot rate in balance sheet date (P32) and the spot rate (PS4) on transaction
date should be chargeable to loss. Capitalization due to devaluation is eliminated under the Revised PAS
No. 21. Refer to Nos. 1. 4. 7 and 32 for further discussions.

36. An entity purchases plant from a foreign supplier for 3 million baht on January 31, 20x6, when the
exchange rate was 2 baht = P1. At the entity's year-end of March 31, 20x6, the amount has not been
paid. The closing rate was 1.5 baht = P1. The entity's functional currency is the peso. Which of the
following statements is correct?

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

Solution:

(c)

Cost of plant 3 million baht x P1/2 baht (spot rate date of transaction) = P1.5 million Trade payable 3
million baht x P1/1.5 baht (spot rate on the balance sheet date) = P2 million

Date of transaction (liability)……………………………………………………. P1.5 million

Balance sheet date (liability)……………………………………………………. 2.0 million
Foreign exchange loss……………………………………………………………… P .5 million
37. On October 1. 20x6, Boni Co. purchased merchandise worth a total of 100.000 foreign currencies
(FC'S) from its foreign supplier, payable within 30 days under an open account arrangement. Boni Co.
issued a 30-day, notes payable in FC. On October 31, 20x6, Boni Co. paid the note. The following
information on spot rates (P/FC) is provided:

Buying Selling
October 01, 20x6………………………………………………………………. P24.03 P24.15
October 31, 20x6………………………………………………………………. 24.10 24.22

Boni Co.'s foreign exchange gain or loss on the transaction is:

a. P5,040 loss c. P12,075 gain

b. 7,000 loss d. 19,110 loss
(Adapted)

Solution:

(b)

Date of transaction: October 1, 20x6 selling spot rate……………………………………. P. 24.15

Date of settlement October 31, 20x6 selling spot rate.………………………………….. 24.22
Foreign exchange loss per FC…………………………………………………………………………. P . 07
Multiplied by Number of FC…………………………………………………………………………… 100,000
Foreign exchange loss……………………………………………………………………………………. P 7,000

38. City Bank of Manila (CBM) commenced correspondence relationship with Chicago Bank of USA in
May. 20x6. 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, 20x6 was P56.75/US$, the respective balances, on this date,
for CBM and Chicago Bank are:

a. CBM: P170,725 Chicago: $1.500 c. CBM: P255,375 Chicago: $4,500

b. CBM:P253.325 Chicago: $4,500 d. CMB: P293,050 Chicago: $6,000
Solution: (c)

Total debits:
May 1…………………………………………………………. $ 1,000
May 15………………………………………………………. 5,000
$ 6,000
 Less: Total credits:
May 10…………………………….…………….……………. $ 1,000
May 15……………………………..…………….…………… 5,000 1,500
Balance as of May 31, 20x6………………………………… $ 4,500
Multiplied by. Exchange rate on
the intervening balance sheet date…………… P 56.75
P255,375

39. Ball Corp. had the following foreign currency transactions during 20x6:

 Merchandise was purchased from a foreign supplier on January 20, 20x6 for the Philippine peso
equivalent of P90,000. The invoice was paid on March 20, 20x6 at the Philippine peso equivalent
of P96,000.
 On July 1, 20x6. 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, 20x7. On December 31, 20x6, 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 20x6 income statement, what amount should be included as foreign exchange loss?

a. P 0 c. P21,000
b. 6,000 d. 27,000 (AICPA)
Solution:

(d)

Foreign Supplies:
Date of transaction: January 20, 20x6……………………….. P 90,000
Date of settlement: March 20, 20x6………………………….. 96,000
Foreign exchange currency loss………………………..………. P 6,000

Foreign Creditor:
Date of transaction: July 1. 20χ6: ……………………………….
Principal..... ………………………..………………………… P500,000
Add: Interest (P500.000 × 10% × ½)……….……… 25,000
Total………………………..………………………..……..…… P525.000

Balance sheet date: December 31, 20x6:

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

40. 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, 20x7 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,
20x8.........................................................................................................................P103.500

Accounts payable to Furrows Corporation for merchandise received December 2 and payable on
January 20, 20x8. Billing is for 275.000 foreign currencies……………………………………P195.250

Exchange rates on selected dated are as follows:

December 31, 201x7…………………………………………… P0.680

January 15, 20x8…………………………………………………. 0.675
January 20, 20x8…………………………………………………. 0.685

The net exchange gain (loss) from the two transactions that will be included in the income statement for.

20x7 20x8 20x7 20x8

a. P8.250 P(625) c. P6,750 P(2,125)
b. 9,750 (1.375) d. (6,750) 2,075
(Adapted)

Solution:

(c)

20x7: Exchange gain or (loss)

Date of transaction: A/R. December 16………………………………. P103,500
Balance Sheet Date: A/R, December 31……………………………….
P.68 x 150,000………………………………………. 102,000 P(1.500)

Date of transaction: A/P, December 2…………………………………. P195,250

Balance Sheet Date: A/P. December 31……………………………….
P.68 x 275,000……………………………………… 187,000 8,250
Net Exchange gain or (loss)…………………………………………………. P6,750

20x7: Exchange gain or (loss):

Balance Sheet Date: A/R, December 31 …………………………….. 102,000
Date of Settlement: A/R, January 15:
P.675 x 150,000……………………………………… 101,250 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(2,125)

41. The accounts of llocano International, a Philippine corporation. Show P81,300 accounts receivable and
P38.900 accounts payable at December 31, 20x6, 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 1 11,800

Receivable denominated in 25.000 foreign currency 2 41,000

Total…………………………………………………………………………………………………………………………… P81,300

Accounts Payable:

Payable denominated in Phil pesos…………………………………………………………….............. P6,850

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 December 31,
20x6 are 166. P1.65 and P.70. respectively. Determine the net exchange gain or loss that should be reflected
in locano's income statement for 20x6 from year-end exchange adjustments.

a. P1.950 c. P1650

b. (1.950) d. (300)

SOLUTIONS: (a)

Balance Balance Exchange gain

Per Book Sheet or loss

Accounts receivable:

Phil. Pesos………………………………………… P28,500 P 28,500 P--0--

Foreign currency 1(20,000x P.66) ……...11,800 13,200 1,400

Foreign currency 2(25,000Xp1.65) …… 41,000 41,250 250

P81,300 P82,950 P1,650

Accounts payable:

Phil. pesos…………………………………………. P 6,850 P6,850 P--0--

Foreign currency 3 (10,000x P.70) ……. 7,600 7000 600

Foreign currency 2 (15,000Xp1.65) ……24,450 24,750 P (300)

Net exchange gain…………………………………………………………………………………………………………………………… P1,950(a)

42. Using the same information in No. 41, determine the amounts at which the accounts receivable and
accounts payable should be included in llocano's December 31.20x6:
Accounts Receivable Accounts Payable Accounts Receivable Account Payable

a. P79.332 P64,185 c. P134.145 P27,230

b. 82.950 38.600 d. 53.658 38.600

SOLUTIONS: (b)

Accounts Receivable. 12/31x6………………………………………………………………. P82.950

Accounts Payable. 12/31x6……………………………………………………………….. 38,600

Refer to Nos and 41 for further discussions and computations

43. On November 30, 20x8. Tyrola Publishing Company, located in Ilocos Norte executed a contract
executed 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, 20x7, totaled $50.000 Canadian Tyrola
paid Blyton his 20x7 royalties on January 10,20x8. Tyrola's 20x7 financial statements were issued on February
1, 20x8.Spot rates for Canadian dollars were as follows:

November 30,20x6………………………………………………………. P32.73

January 1, 20x7………………………………………………………………32.79

December 31, 20x7…………………………………………………………33.00

January 16. 20x8………………………………………………………………33.10

How much should fyrata accrue for Royalties payable at December 31, 20x7?

a. P163,950 c.163,650

d. 165,500 d. 165.500

SOUTIONS: (d)

Note that in this royalty agreement,12/31x7 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
liabiliity is denominated at 12/31/2017 The year-end accrued would be:

Royalty Expense (15,000 Canadian dollar x P33 …………………..….165,000

Royalties Payable…………………………………………………………………………………… 165,000

44. On December 26, 20x6, the vice-president of marketing of Travel Corp. was given a P6.000 travel
advance for a 10-day trip 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, 20x6 was I baht equals P. 48. On January 5, 20x7, the vice-president returned and submitted to
the company cashier 1,100 baht and receipt for 10.900 baht mat 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, 20x6. The foreign exchange loss on December 31, 20x6 amounted to

a. P 0 c. P126

b. 57 d. 183

SOLUTIONS: (d)

12.000 Baht:

20x6: Expended: 5.700 x [(P.50+ P.48)/2*-P.48] …………. 27

Unexpended: 6.300 x[P.50-P.48] …………………………… 126 P183 (d)

12,000

20x7: Expended: 5,100 x [(P.48 + P.42] …………………………. P 156

Unexpended: 1,100 x [(P.48-P.42] …………………………… 66 P222

6,300

*Average spot rate since, expenses normally Incurred evenly during the period.

Or, the foreign exchange loss amounted to for 2016:

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/x6 12/31/ x6 1/5/x7

Baht on hand 12,000 - 5,700 = 6,300 - 5,200 = 1,100

Direct exchange rate P .50 P .48 P .42

U.S dollars P6000 P3,042 P 462

Charge to expense P2,976 P2.562

Breakdown of expenses:

Holding loss

5700 baht x P.01= 57 5,200 baht x P .03 = P 156

6,300 baht x P.02= 126 1.100 baht x P.06 = 66

Travel expenses:

5,700 baht x P .49 = P2.793 5.200 baht x P.45 = 2,340

P2,976

*Average direct exchange rate during the period.

Entries Required of 12/21/x6

Potion of Travel Advance That Had Been Expended

Travel Expenses (5.700 baht x P.49 average rate) …………………………………………………. 2,793

FX Lost (5,700 baht x P.01 decline (P.49-P.48) …………………………………………………………. 57

Employee Receivables-Travel Advance 5,700 baht x P .50) ……………………………………. 2,850

Portion of Travel Advance That Had Not Been Expended

FX Loss (6,300 baht x P .021) ………………………………………………………………………………. 126

Employee Receivables -Travel Advance ………………………………………………………… 126

(12.000 baht -5.700 baht =6,300 baht)

45. Using the same information in No. 44, the foreign exchange loss on January 5.20x7, the settlement of
remaining travel advance:

a. P 66 c. P183

b. 156 d. 222.

SOLUTIONS: (d)

refer to No.: 44 for further computation.

The foreign exchange loss amounted to P222 (P156 + P66) (d)

Entity Required on 1/5/x6

Travel expense (5,200 baht x P. 45 average rate)

[(P48 P.42)/2 P.45 ] ………………………………………………………………………….2,340

FX Loss [5,200 baht x P.03 decline (P .45 – P.42)] ………………………………………… 156

FX Loss [1,100 baht x P.06 decline (P.48 – P.42)] …………………………………………. 66

Cash (1.100 baht x P.42) ……………………………………………………………………………… 462

Employee Receivables -Travel Advance ………………………………………………… 3,024

To record settlement of remaining travel advance.

46. If 11 P51.50 can be exchange for I dollar, the direct and indirect exchange rate quotations are:

a. P P51.50 and$ 1, respectively c.1 and$51.50 respectively

b. 51.50 and$.02. respectively d.1 and$ 02. Respectively

SOLUTIONS: (b)

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

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

47. Suppose the foreign exchange rates are:

1 dollar =P.7025

1 pound= P2.5132

Based on the information given above, the indirect exchange rates for the dollar and the Pound are:

a. 1.7655 dollars and 1.4235 pounds respectively.

b. 0.2975 dollars and 1.5132 pounds respectively.

c. 2.1622 dollars and 0.4625 pounds respectively.

d. 1.4235 Sdollars and 0.3979 pounds respectively.

SOLUTIONS: (d)

1/7025 =1.4235 and 1/2.5132=3979.

48. Using the same information in No. 47, how many Philippine pesos must be paid for a purchase of citrus
fruits costing 10.000 pounds?

α. P25,132 c. P 3,979

b. P3,979 d. P35.775
SOLUTIONS: (a)

10.000 cyprus pounds x 12.5132/Cyprus pound = P25.132.

49. Using the same information in No. 47. 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

SOLUTIONS: (b)

P10,000 x 1 Singapore dollar/P.7025=14,235.

50. Shore Co. records its transactions in pesos. A sole 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 exchangeable Francis exchangeable

for Pl for P 1

a. Increase Increase

b. Decrease Decrease

c. Decrease Increase

d. Increase Decrease

SOLUTIONS: (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 pesos would have had to decrease.
requiring more yen to be paid at me settlement date for the same amount of pesos at the contract dote. On
the other hand, there was a foreign exchange transaction lass on the payable denominated in French francs.
This means that at the settlement date Share Co, had to pay more francs than were recorded in the payable
account. For the to occur the rate of francs exchangeable for a peso would have had to decrease, requiring
more francs to be paid of the settlement date for the same amount of pesos of the contract date.

Use the following information to answer questions 51 to 53 below:

Star Corporation sells inventory on June 20 to a foreign company for 86,000 FC (foreign currencies). Payment
occurs on August 10. The exchange rate on June 20 is 1 FC=P1.016 and 1 FC=P1.022 on August 10

51. What is the amount recorded on Wizard's financial records for the sale on June 20?

a. P 516 c. P 87,892

b. P87.376 d. P175.268

SOLUTIONS: (b)

FC 86,000 x 1.016

52. What is the amount on Exchange Gain or Loss recorded on Wizard's financial records on August 10%?

a. P 516

b. P87.376 d. P175.768 P 87.892

SOLUTIONS: (b)

FC 84.000 (P1.022-1016)

53. What is the debit to cash when wizard collects the Accounts Receivable on August 10%

a. P516 c. P 87.892

b. P87.376 d. P175.268

SOLUTIONS: (c)

FC P6,000 x P1.022

Use the information to answer questions 54 and 55:

On June Philippine Company purchased merchandise of an invoice Use the following information to answer
questions 54 and 55: price of 2.000.000 foreign currencies (FC), when the exchange was 90.08/ FC. On June
30, 20x5, the company's year-end the exchange rate was P0.075/ FC. On July 15, 20x3, the company
purchased the 2.000.000 FCs for P0.089 and paid the invoice. On July 30, 20x5, the company sold the
merchandise to a Philippine customer for P250.000.

54.The merchandise should be valued on the Philippine company's June 30 balance sheet at:

a. P1781000 c. P150.000

b. 160,000 d. P 10.000
SOLUTIONS: (b)

2.000.000 Pesos x PO.08 160.000

55. The Philippine company's gross margin on the July 30 sale is:

a. P72,000 c.90.000

b. P82.000 d. 100.000

SOLUTIONS: (c)

Cost of goods sold P160.000. unaffected by changes in rates subsequent to purchase, P250.000-P160.000
=P90.000

Use the following information to answer questions and 10 below.

A Philippine Company purchases a 90-day certificate of deposit from a foreign bank on September 15. The
certificate has a face value of FC (foreign currency) 1.000.000, costs FC 800.000, and pays interest at an
annual rate of 2 percent. On December 13, the certificate of deposit matures and the company receives
principal and interest of FC 1.005.000. The spot rate on December 14 is P0.77/FC The average spot rate for
the period September 15-December 13 is PO.79/FC.

56. The exchange gain or loss on the investment is:

a. P30.000 gain c. P10,000 loss

b. P30.000 loss d. P10.000 gain

SOLUTIONS:

(b) FC 1.000.000 (P0.77-P0.80) =P30,000 loss

57. Interest income on the investment is reported at:

α. 15,400 c. P3.950

b. P4.000 d. P3.850

SOLUTIONS:(d)

FC 5,000x P0.77= P3.850

Foreign Currency Financial Statement Translation

58. Certain balance sheet accounts of a foreign subsidiary of Rowan, Inc., at December 31, 20x6, have been
translated into Philippine pesos as follows:

Translated at

current rates Historical rates

Note receivable, long-term…………… P 240,000 P200,000

Prepaid rent..................................... 85,000 80,000

Patents............................................. 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. 20xé consolidated balance sheet for the above account?

a. P450,000 c. P475,000

b. 455,000 d. P495,000

SOLUTIONS: (c)

All assets should be translated of the closing (current) rate of the balance sheet date as required by PAS No.
21 (Revised).

59. A foreign subsidiary of Decker Corporation has certain balance sheet accounts at December 31, 20x6.
Information relating to these accounts in Philippine pesos is as follows:

Translated at

Current rates Historical rates

Marketable securities, of cost. ... ………........ P 65,000 P 75,000

Inventories, at average cost......................... 500,000 550,000

Patents … …………………………………………………… 80.000 85,000

P645.000 P710.00

What total amount should be included in Decker's December 31, 20x6, 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. 700,000 d. P645,000
SOLUTIONS: (d)

Refer in No. 58 for further discussion

60. A wholly owned subsidiary of Ward, Inc., has certain expense accounts for the year ended December 31,
20x6. stated in local currency units (LCU) as follows:

LCU

Depreciation of equipment (acquired 1/1/20x4 …………………………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 31,20x6…………………………………. P.40

Average for the year ended 12/31/20x6.... .44

January 1,20x4 ……………………………………. .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. P176,000

b. P168.000 d. P183.200

SOLUTIONS: (c)

Using current/ closing rale 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 P176,000.

61. 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, 20xa as follows:

Bad debts expense …………………………………………………………………. 60.000

Amortization of patent……………………………………………………………. 40,000

 Pent expense…………………………………………………………………………… 100,000

The exchange rates for LCU's at various dates were as follows:

November 30, 20x6 …………………………………………………………………………………... 0.20

Average for fiscal year ended, November 30, 20………………………………………….0.22

December 31, 20x6…………………………………………………………………………………….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 Philippines Company's subsidiary for the fiscal year ended
November 30. 20x6 for the foregoing expense account?

a. P44.000 c. P42,000

b. P40.000 d. P45.200

SOLUTIONS: (d)

Since the foreign operation is integral to the operations of the parent, therefore temporal method would be
most appropriate.

In remeasuring amount of expenses that correspond with the dates of me underlying transactions, Ie.,
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 used
existed during the period maybe used to provide an approximation for the actual rates (historical rates),ie,,
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 …………………………………………………………. P 13,200

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

62. On January 1, 20x6.Kiner Company formed a foreign branch. The branch purchased merchandise of a
cost of 720,000 local currency units (LCU) on February 15, 20x6. The purchase price was equivalent to
P180,000 on this date. The branch's inventory of December 31, 20x6 consisted solely of merchandise
purchased on February 15, 20x6, and amounted to 240,000 LCU The exchange rate was & LCU to F1 on
December 31, 20x6, and the average rate of exchange was 5 LCU to P1 for 20x6. In Kiner’s December 31.20x6
balance sheet, the branch inventory balance of 240.000 LCU should be translated into Philippine pesos at
fusing closing rale method).
a. P40,000 c. P60.000

b.48,000 d. 84.000

SOLUTIONS: (a)

P 40,000 (240.000/6). Assets should be translated using closing rate if closing rate method is used.

63. Certain balance sheet accounts in a foreign subsidiary of Rose Company at December 31, 20x8, have been
stated info 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

P 430,000 P470,000

This subsidiary's functional currency is a foreign currency. What total amount should be included in Rose's
balance sheet for the preceding items?

a. P430.000 c. P440,000

b P435.000 d. P450.000

SOLUTIONS: (a.)

Because the foreign currency is the functional currency, a translation is required. All asset accounts are
translated at current roles

64. Using the same information in No. 63, and the subsidiary's functional currency is peso. What total
amount should be included in Rose's balance sheet include for the preceding items?

a. P430.000 c. P440,000

b. P435,000 d. P450,000

SOLUTIONS: (c)

Because me peso is the functional currency, a remeasurement or temporal methods required. All receivables
are remeasured of current rates. Assets carried at historical cost such as prepaid insurance and goodwill are
remeasured at historical rates.
65. Reynolds (Philippine company) acquires 70 percent ownership of Pishot's (Indonesian company) on
January 1. At the acquisition date, Pishots plant assets have an historical cost, accumulated depreciation, and
remaining life of 675.000.000 rupiah, 135,000,000 rupiah, and eight years, respectively. On May 1. Pishot
acquired plant assets for 60 000 000 rupiah. All assets are depreciated straight-line with a ten year life and no
salvage value. Below are relevant exchange rates for the year.

January P.0086

May 1 P.0088

December 31 P.0085

Average January 1-May 1 P.0089

Average May 1-December 31 P.0083

Average January 1-December 31 P.0084

What is the peso amount of (i) depreciation expense and (ii) accumulated depreciation on the Philippine peso
trial balance it the temporal method is applied?

a. (i) P615.700: (ii) P1,776.700

b. (i) P616.800: (ii) P1,766.700

c. (i) P615,700: (ii) P1,772,250

d.(i) P616.800: (ii) P1,772.250

SOLUTIONS: (a)

[i] [{675,000,000- 135,000,000}/8] P .0086 +(60,000/10) {8/12} P .0088 = P 615,700

[ii] Beginning balance 135,000,000 x P.0086 P1.161,000

[iii] Current period depreciation expense 615,700

({675,000,000-135,000,000}1/8) P.0086 +

(60,000,000/10) (8/12) P.0088

Ending balance P 1,776,700

Items 66 and 67 are based on the following information:

Precious (Philippine company) acquired 90 percent ownership of Estrella (foreign company). The beginning
inventory at the acquisition date was 530.000 FC (foreign currencies). During the year Estrella purchased
2.300.000 FCs of inventory and ending inventory amounted to 600.000 FCs. The ending inventory was
acquired during the fourth quarter of the year. The acquisition date, average for the year, fourth quarter
average, and end of year exchange rates were P.74. P.75, P.71 and P.73, respectively.

66. Assuming inventory records are maintained on a First-in, First-out basis what is the converted Cost of
Goods Sold it the temporal method is applied.

a. P1,505,250 c. P1,672,500

b. P1,522,080 d. P1,691.200

SOLUTIONS: (c)

Beginning inventory P530,000

Purchases 2,300,000

Ending Inventory (600,000)

Cost of Goods Sold (average rate for the year). 2.230.000 x P.75 P1,672.500

67. Assuming inventory records are maintained on a first-in, First -out basis, what is the converted inventory
if the current rate method applied.

a. P383.400 c. P426.000

b. P 426,000 d. P438,000

SOLUTIONS: (d)

Ending Inventory (600.000 x P.73, current rate) P438.000 B/S account

Items 68 and 69 ore based on the following information:

Jacksonville Philippine company) acquired 90 percent ownership of Jentan (Indian. Compony), the beginning
inventory at the acquisition date was 510.000 rupees. During the year Jentan purchased 40.000 rupees of
inventory and ending inventory amounted to 570.000 rupees, the ending inventory was acquired during the
fourth quarter of the year. The acquisition date, average for the year, fourth quarter average, and end of year
exchange rates were 1.97. P.99, P1.03 and P1.01, respectively.

68. Assuming inventory records are maintained on a first-in, First-out, what the converted Cost of Goods
Sold if the temporal method is applied.

a.1739,200 c. P772,200

b.762.000 d. P794.000

SOLUTIONS:(a)

Beginning inventory (510,000 x P.97) P494,700

Purchases (840,000 P.99) 831,600

Ending Inventory (570,000 x 1.03) (587,200)

Cost of Goods Sold 831,600 (587.100) P739.200

69. Assuming the inventory records are maintained on a first-in, First-out basis what the converted Cost of
Goods Sold it the temporal method is applied.

a. P556.500 c. F575,700

b. P1564.300 d. P587,100

SOLUTIONS: (d)

refer to No. 48. Ending Inventory (570.000 P1.03)=P587,100.

70. An entity acquired all the share capital of a foreign entity of a consideration of 9 million baht on June 30,
20x6. 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. 20x6. The exchange
rates at June 30, 20x6 and December 31. 20x6, were 1.5 baht= Pl and 2 baht =Pl respectively. What figure for
goodwill should be included in the financial statements for the year ended December 31, 20x6 ?

a. 12 million

b. 3 million baht

c. P1.5 million

d. P3 million

SOLUTIONS: (c)

Consideration 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

Examinees or students may be misled that since the functional currency is peso, but, such is not the case,
when goodwill arises from consolidation wherein PAS 21 par 47 should be applied

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 fair 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 use 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, it treated as an asset in the acquirer’s
books. there is no need for translation.

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 asset and liabilities arising on the acquisition 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….”

71. The Pinoy Company acquired a foreign subsidiary (Taiwan) on August 15. 20x4. Goodwill arising on the
acquisition was Nt Dollar (Taiwanese currency 175.000. Consolidated financial statements are prepared at the
year end of December 31, 20x6 requiring the translation of all foreign operations results into the presentation
currency of peso.

The following rates of exchange have been identified:

Rate of August 15, 20x6 t Dollar 1.321: PI

Rate of December 31. 20x6 Nt Dollar 1.298: P1

Average rate for the year ended December 31, 20x6 Nt Dollar 1,302: PI

Average rate for the period from August 15 to December 31, 20x6 Nt Dollar 1.292 : P1

According to PAS 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. P134,409
b. P135.449
c. c. P134.823
d. d. P312,449

SOLUTIONS: (c)

Refer to No. 70 for further discussion

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 on the acquisition of a foreign operation should
be healed on an asset of the foreign operation. The goodwill should therefore be expressed in the functional
currency of the foreign operation and translated of 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 amount of assets and
liabilities arising on the 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.
72. An entity acquires a foreign subsidiary on August 15, 20x6. 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 rate is 5 baht: P1. The exchange loss at year-end amounted to:

a. Nil or zero

b. P20.000 loss

c.P20.000 gain

d. Connot be determined

SOLUTIONS: (b)Refer to No.70 for further discussion.

The goodwill of the date of acquisition is P100,000 (400,000 baht x P1 / 4 baht) At the year-end it is
retranslated to P80.000 (400.000 baht x 1/5 baht). The difference of P20,000 is record as an exchange loss
and reported in other comprehensive income

in the consolidated financial statements any goodwill arising on the 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 of 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 operation .In both cases exchange differences are recognized
in other comprehensive income ,rather than as part of the profit or loss for the period.

73. An entity acquired 60% of the share capital of a foreign entity on June 30. 20x6. The fair value of the net
assets of the foreign entity at that date was & million baht. This value was 1.2 million higher than the carrying
amount at the net assets of the foreign 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.
20x The exchange rates of June 30, 20x6. and December 31, 20x6, 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 Decent 31.20x6?

a. P600.000

b. P800,000

c. P2 million

d. P3 million

SOLUTIONS: (a)

Allocated excess arising from consolidation …………………………………………………. 1,200,000

Divided by CLOSING/CURRENT RATE on the balance sheet

( baht per peso) ………………………………………………………………………… 2.0

Allocated Excess (over / under valuation) …………………………………….. P. 600,000

Refer to No. 70 and 71 for further decussion of using closing/current rate. Again, the same with No 58, the
functional currency of peso is somewhat misleading it does not refer to the use of temporal method on the
date of acquisition
74. The Pinay Company acquired The Kanchengjunga Company (Taiwan currency), a foreign subsidiary, on
September 10, 20x6. The fair value of the assets of Kanchongjunga 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
financial statement are prepared at the year end of December 31, 20x6 requiring the translation of all foreign
operations' results into the presentation currency of peso. The following rates of exchange have been
identified:

Rate at 10 September 20x6 Nt Dollar 1 62: P1

Rate at 31 December 20x6 Nt Dollar 1 56: P1

Average rate for the year ended December 31, 20x6 Nt Dollar 1.60: P1

Average rate for the period from 10 September to December 31. 20x6 Nt Dollar 1.58: P1

According to PAS 21 [The effects of changes in foreign exchange rates) what for value adjustment is required
to the carrying amount of land in the consolidated statement of financial position?

a. P30864 c. P31,250

b. P32,051 d. P31.646

SOLUTIONS: (b)

Refer to No. 70, 71, 72 and 73

fair valve adjustments (undervaluation of land)………………………… Nt 50,000

Divided by COSING/CURRENT RATE on the balance sheet

( Nt dollar per peso)………………………………………………………………. 1.56

Fair value adjustments P 32.051

PAS 21 рaг 47 requires fair value adjustments to me carrying amounts of assets and liabilities arising on 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 exchange.

75. 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 = P1. The functional currency of the entity is he pers. At the dote of
receipt of the dividend the exchange rate had move it to 3 baht=1. The exchange difference arising on the
dividend wing the treated 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' income statement only.

SOLUTIONS:

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 baht x p1/3 baht 800.000

Exchange difference…………………………………………………………………………………P400.000

The accounting treatment of intercompany transactions between a parent and foreign operation, 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 the foreign operation is not part of parents
investment in the foreign operations, any gain or loss be recorded on the parents profit and loss and we Now
through the consolidated or group profit and loss and will not be eliminated on consolidated as the gains or
losses are "one-side and will only arise in the financial statements of the party that is exposed to the foreign
currency intercompany payable of receivable.

76. An entity has a subsidiary that operates in foreign country. The subsidy
cold nods 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 y the entity at
P1.05 million (2 baht = P) and were all unsold at the year-end of Dec
31. 20x6. The exchange rate at that date was 1.5 baht = P) What I value of
the intragroup profit that will be eliminated at December 21 ,20x6?
a.P205,000 c.P450,000
b.P350,000 d.P600,000
solution:
76.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 ifs foreign subsidiaries, or between foreign subsidiaries must be eliminated
in full. Neither PAS 27 nor PAS 27 provides specific Guidance in relation for transaction’s
with foreign entities. A key matter of concern s whether the adjustment should be
affected by changes in the exchange rate. in this regard, note paragraphs 136 and i3/
of the Basis tor Concisions relating io the US Statement of Financial Accounting
Standards (SFASj No. 52 Foreign Currency Transition:

136. An intercompany sate or transfer of inventory, machinery, etc... includes d

component of intercompany profit. The Board considered whether computation of the
amount of intercompany profit to be eliminated should be based on exchange rates n
effect on the date of intercompany any sale or transfer.

137. The Board decided that any intercompany profit occurs on the date of sale or
transfer and that exchange rate in effect on that date or reasonable approximal actions
thereof should be used ta compute the amount of any intercompany profit to be eliminated.
the effect of subsequent changes in exchange rates rother than being attributable to
intercompany profit.

77. 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 1,20x6, for 100,000 foreign Currencies (FC) that is sold on January
17, 20x7 for 130,000 foreign Currencies (FC). The subsidiary pays for the
inventory on January 31, 2017.Curency exchange rates for foreign currency
(FC) are as follows:
November 1, 20x6…………………………………………………………….P 0.16 = 1 FC
December 31, 20xó………………………………………………………………0.17 = 1
January 17, 20x7…………………………………………………………………..0.18 =1
January 31, 20x7…………………………………………………………………..0.19 = 1
Average for 20x7…………………………………………………………………..0.20=1

What amount does Salisbury's consolidated balance sheet report for this
inventory.at December 31,20x6?
a. P16,000 c. P18,000
b. P17,00O d. P19,000
solution:
77. (b)
The foreign currency is the functional currency, so a translation method or closing rate
method is appropriate, All assets (including inventory) are translated at the current
exchange rote [100,000 x P. 17}.

78. Using the Same information in No. 74, what amount does Salisbury's
consolidated income statement report for cost of goods sold for the year
ending December 31, 2Ox72?
a. P16,000 c. P18,000
b. P17,000 d. P19,000
solution:
78. (c)
The foreign currency is the functional currency, so a translation method or closing rate
method is appropriate. Cost of goods sold is translated at he 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.

79. Using the same information in No. 77, what amount does Salisbury's
Consolidated income statement report for cost of goods sold for the year
ending December 31,20x7 assuming the following current rates for 1 foreign
currency (FC):
November 1, 20x6……………………………………………………..P0.16 = 1 FC
December 31,20x6…….…………………………………………………0.17=1
January1. 20x7……………………………………………………………..0.18 = 1
January31.20x7…………………………………………………………….0.19 =.1
Average for 20x6…………………………………………………………..0.20 = 1

a. P16.000 c. P19,000
b. P17,000 d. P20,000
solution:
79. (d)
The foreign currency is the functional currency, so a translation method or closing rate
method is appropriate. Cost of goods sold is translated at the average rate for 20x7
(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.201).

80. Blyke Corporation subsidiary buys marketable equity securities and inventory
on April 1, 20x6, for T00,000 foreign currencies (FC) each. It pays for both
items on June 1, 20x6, 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, 20x6………………………………………………………….P 0.15: 1 FC
April 1, 20x6.......................................................................0.16: 1 FC
June 1,20x6…………………..……………………………………………….0.17:1 FC
December 31, 2Ox6……………………………………………………….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, 20x6?
a. Marketable equity securities = Pl6.000 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
solution:
80. (d)
The foreign currency is the functional currency, so a transition method or closing rate
method is appropriate. All assets are translated at the current exchange rate of P.19.

81. Using the same information in No. 79 and assume that the peso is the Currency.
What balances does a consolidated subsidiary’s functional balance sheet report as of
December 31, 20x62?
a. Marketable equity securities = Pl6,000 and inventory = Pl6.O00.
b. Marketable equity securities = P17,000 and inventory = P17,000
c. Marketable equity securities = P19,000 and inventory =Pl6.000,
d. Marketable equity securities = P19,000 and inventory = P19,000.
Solution:
81. (c)
the peso is the functional currency, so a remeasurement or temporal method is
appropriate, Inventory (carried at cost) is remeasured at the historical exchange rate
of P.l6. Marketable equity securities (carried at market valve) ore remeasured at the
Current exchange rate of P.19.

82. Houston Corporation operates s a branch operation in a foreign country. Although

this branch deals in foreign currency (FC). the pèso is viewed as its functional currency.
Thus, a remecsurement 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 Moy, it purchased inventory costing 30,000 FCs for
cash and it sold on July 1 for 50.000 FCs cash. The branch transfered 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 I………………………………………………………………..P 0.16= 1 FC

May l…………………………………………..……………………………0.18 =1
July 1...............................................................................0.20 = 1
October………………….……………..…….……………………………0.21 =1
December 31…………………………..…………………………………0.22= 1
Average for the year…………………….…………………………….0.19 = 1

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

solution:
82. (a]
Beginning net monetary assets, 1/1 ……………………………….. P100,000 x P.l6 =P16,00n
Increases in net monetary assets: Sale of inventory ……………………… P500,000 X P.20 = 10,00n
Decreases in net monetary assets:
 Purchase of equipment ……………………………………………………… (60.000} x P.l6= (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, 12/31………………………………………. P50,000 P8,900

Ending net monetary assets at the current exchange rate…………………….. P50,000 X P.22 = (11,000)
Remeasurement gain …………………………………………………………………… P(2,100)

83. Using the same information in No. 82, 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
solution:
83. (C)
Marketable equity securities are caried at market value and therefore translated of
the current exchange rate under the temporal method or remeasurement method.

84. The subsidiary in Japan of Manila Company, a Philippine enterprise has plant assets
with a cost of 3,600,000 yen on December 31, 20x7. Of this acquired in 20x5
amount, plant assets with a cost of 2.400.000 yen were when the exchange
rate was l yen=P0.625; and plant assets with a cost of1,200,000 yen were
acquired in 20x6 when the exchange rate w was 1 yen =PO 556. The exchange
rate on December 31,20x7 wasp yen= PO.500, and the weighted average rate for 20x7
was I yen = PO.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 20x7
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

solution:
84. (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
for non-monetary items recorded at past (historical exchange price, therefore, historical
rate should be used to remeasure expenses as follows:
Depreciation expenses:
20x5 acquisition: 2,400,000 yens / 10 years = 240,000 yens x P.625 ....:………………. P150.000
20x6 acquisition: 1,200,000 yens 10 years = 120,000 yens x P.556 ....................... 66,729
P216,720

85. Westmore, Lid. is a Thailand subsidiary of a Philippine Company. Westmore's functional

currency is baht. The following exchange rates were in effect during 20x6:
 January 1……………………………………………………………………….…P1 = .625 baht
June 30 ..............................................................................P1 =.610 baht
December 31………………………………………………………..……….P1 =.620 baht
Weighted.average rate for the year……………………………….P1 =.630 baht

Westmore reported sales of Bath 1,500,000 during 20x6. What amount (rounded) would have been
included for this subsidiary in calculating consolidated sales?

a. P2,380,952 c. P2,429,150
b. P2,400,00 d. P2,419,355
solution:
85. (a)
The foreign currency is the local Currency unit (LCU), so a translation method or closing
rale methods 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
P2,380,9.52 (7,500,000 baht / 0.630 baht)

86. Using the same information in No. 85, Westmore had accounts receivable o Baht 280,000 on
December 31, 20x6. 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
solution:
86. (b)
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.620.
Thus, accounts receivable will amount to P451,613 (280,000 baht .620.baht)
87. 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.
Solution:

87. (d)
PAS 21 (revised) requires that all income statement accounts is to be translated at the
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
preferred that average monthly rate should be used.
88. Ace Corporation starts a subsidiary in a foreign country; the subsidiary’s functional currency
is the LCU. On January 1. Ace buys all of these 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 foreign
Currency are as follows:

January1 ..............................................................................P.15 =1 FC
April 1...................................................................................P.I7 =1
May 1…………………………………………………………………………….P.18 =1
August……………………………………………………………………………P.19 = 1
October 1 ............................................................................P.20 = 1
December 31………………………………………………………………….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)

Solution:
88. (c)
The foreign Currency is the local currency unit LCU. so a translation method or do
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) ……………… 10,00 .019 (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 deals
of transactions were given.)
All assets and liabilities are translated at the Current exchange rate (CR). Thus, CR WOs
Used for determine the ending balance of Net Assets, so that the translation gain
should be properly determined.

89. Using the same information in No. 88, in the translated financial statements.
what translation adjustments will Ace report at the end of the current year?
in current rate method, income statement translated at average
exchange rate for the 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
solution:
89. (c)
By translating items carried aft historical cost by the historical exchange rate, the
tempo! method maintains the underlying valuation method used by the foreign
subsidiary.

90. Manilow has a year end on December 31, 20x6 and uses the peso as its
functional currency. On November 29, 20x6, 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, 20X6: 1 peso =1.52 yens
December 31,20x6: 1 peso =1.66 yens

The following amounts should be recorded by interest by Manilow, ignoring

payable on the loan. On November 29, 20x6 the Cash advance from the
bank amounted to:

a. P1,520,000 c. P915,662
b. P1,000,000 d. Cannot be determined
solution:
90. (b)
Cn November 29, 20xó, the following amounts should be recorded by Manilow, ignoring
interest payable not he loan. The cash advance front he bank is translated at the rate
on the date that it was received (1,520,000 yens x P1 / J.52 yens = Pl,000,000) and a
liability recorded for the same amount.

91. The same information in No. 90, the December 31,20xó bank loans payable exchange
difference that should be recognized in profit or loss for the period amounted to:

a. Nil or zero c. P 84,337 loss

b. P84,337 gain d. P604,338 gain
solution:
91. (b)
As the loan was still outstanding at the end of he 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 P] / 1.66 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 Dar. 28 states that 'Exchange deference’s arising on the settlement of monetary
items {i.e. bank loan payable in this Case) or on translating monetary items to 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.

92. The Witley Company has the peso as its functional currency. 16, 20x6 Witley
ordered some inventory from a foreign supplier and agreed n October
a purchase price of 160,000 yens. The inventory was received on November
15, 20x6. On December 31, 20x6 the inventory remained on hand
and the trade payable balance for the inventory purchase
remained outstanding. The Supplier Was paid on January 27, 20x7 and
the inventory was sold on January 31, 20x7.

The following information about exchange rates is available:

October 16, 20x6 Pl = 2.60 yens
November 15,20x6 P1 =2.50 yens
December 31,20x6 Pl = 2.40 yens
January 27, 20x7 Pl =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,
20x6.
a. P61,538 c. P66,667
b. P64,000 d. P71,111

solution;
92. (c)
- 160,000 yens x Pl /2.40 yens = P66,667
PAS 21 por. 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.
2. (c) - 160,000 yens x Pl /2.40 yens = P66,667 PAS 21 por. 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.

93. Connie Corp. had a realized foreign exchange loss of P15,000 for the year ended December 3 1,
20X6 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 31,20x6.
•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 31.20x6
invoice date, and it was P60,000 on December 31, 20x6. The
invoice is payable on January 30, 20x7.

In Connie's 20x6 consolidated income statement, what amount should be

included as foreign exchange loss?

a. P11,000 c. P19,000
b. 15,000 d. 23,00
solution:
93. (a)
The reported foreign exchange loss s determined as folowS:
Foreign exchange loss before adjustment ……………………………………………………… P15,000
Gain on transaction denominated in a foreign currency ………………………………… 4,000
Foreign exchange loss for 20x6 .......................................................................... P11,000

The payable to the unrelated foreign suppliers is a transaction denominated in a foreign

Currency. The payable was initially recorded at P64,000. It was included in the December
31, 20xó balance sheet at Po0,000. The decrease in the payable represents a P
transaction gain which is recognized in income from continuing operations in 20x%
the other hand, the P8 000 loss resulting from the translation of the accounts of
foreign Subsidiary is not recognized in the 20x6 income statement. Translation gains o
losses translation reserve are reported in the balance sheet as a separate component
of owners' equity.

94. Post, Inc., had a credit translation adjustment of P30,000 for the year ended December 31, 20x7.
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, 2Ox6, this receivable for 200,000 local
currency units (LCU) was correctly included in Post's balance sheet at Pl10,000. When the
receivable was collected on February 15. 20x7, the Philippine peso equivalent was P120,000.
In Post's 20x7 consolidated income statement, how much should be reported as foreign
exchange gain?

a. P 0 c. P 30,00
b. P 10,00 d. P40,00
solution:
94. (b)
Translation adjustments under current rate method (functional Currency is LCUJ relation
to foreign subsidiaries are not include in the determination of consolidated income
These adjustments are reported in other comprehensive income (oc). 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 PI0,000 and it was settled for PI20,000: thus, Post had a Pl0.000
foreign exchange gain in this transaction.
Use the following information to answer questions 95 - 10 below:
A Philippine company a foreign subsidiary on January 1, 20x4. The subsection
trial balances for January l and December 31,20x4 one presented below, in FCs
{foreign Currencies’).

January 1, 20x4 December 31, 20x4

balances Dr (Cr) balances Dr (Cr)

Cash receivables FC 37,000 FC 20,000

Plant & equipment, net 400,000 435.000
Liabilities (172,000) (165,000)
Capital stock (115,000) (115,000)
Retained earnings, January1 (150,000) (150,000)
Dividends 10,000
Sales revenue (800,000)
Operating expenses 765.000
Total FC -0- FC -0-

New plant & equipment of FC85,000 was acquired in 20Ox4. Operating expenses include FC50,000
of depreciation on plant & equipment, of which FC5,000S related to plant & equipment purchased in 20x4.

Exchange rates (P/FC) are as follows:

January 1, 20x4..........................................................................P1.45
Plant & equipment acquired........................................................1.40
Average for 20x4……………………………………………………………………..1.30
Dividends declared………………………………………………………………….1.26
December 31,20x4…………………………………………………………………..1.25

For question 95 - 99, assume that the subsidiary’s functional currency is the FC.
95. What is the translation gain or loss for 20x42?
a. P54,650 loss c. P67,250
b. P59,500 gain d. P67,350
solution:
95. (a)
 FC rate Pesos
Beginning expensed position (FC 115,000 +
FC 150,000 FC 265,000 P1.45 P384,250
+ Net income (FC 800,000 - FC 765,000| 35,000 1.30 45,500
- Dividends (10,0000) 1.26 112,600
P417,150
Ending exposed position (FC 115,000 + FC 150,000 +
FC 800,000 - FC 765,000 - FC 10,000) FC 290,000 1.25 362,500
Translation loss P54,650

96. What are translated total assets for the subsidiary at December 31, 20x4?
a. P659,750 c. P591,500
b. P651,750 d. P568,750
solution:

FC Rate Pesos
Cash receivables FC 20,000 1.25 P25,000
Plant & equipment, net 435,000 1.25 543,750
Total assets FC 455,000 P568,750

Liabilities FC 165,000 1.25 P206,250

Capital stock 115,000 1.45 166,750
Retained earing’s 175,000 see below 250,400
Accumulated other comprehensive loss (54,650)
Total liabilities and equity FC 455,000 P568,750

Income statement 20x4

Sales FC 800,000 1.30 P1,040,000
Operating expenses (765,000) 1.30 (994,500)
Net income FC 35,000 P 45,500
Retained earnings, December 31, 20x4
Retained earnings, January 1 FC 150,000 1.45 P217.500
Net income 35,000 1.30 45,500
Dividends (30,000) 1.26 (12,600)
Retained earnings, December 31 FC 125,000 P250,40

97. What are translated 20x4 operating expenses for the subsidiary?
a. P994,500 c. P1,001,750
b. P987,750 d. P1,109,250

98. What is translated 20x4 net income for the subsidiary?

a. P{9,1 50) c. P42,650
b. P38,250 d. P45,500

99. What is the subsidiary’s translated December 31, 20x4 retained earnings
balance?
 a. P217,500 c. P250,400
b. P243,150 d. P263,000

For questions 100 - 104, assume that the subsidiary’s functional currency is the Philippine peso
100. What is. the remeasurement gain or loss for 20x4?

a. P37,250 gain C. P25,650 loss

b. P35,600 gain d. P24,600 loss
solution:
beginning expensed position (FC 37.000 - FC 172,000) FC (135,000) P.145 P(195,75O)
+ Sales revenue 800,000 1.30 1,040,000
- Out of pocket expenses (FC 765,000 - FC 50,000) (715,000) 1.30 (929,500)
- Dividends (10,000) 1.26 (12,600)
- Plant & equipment purchase (85,000) 1.4 (19,000)
(216,850)
Ending exposed position (FC 20,000 - FC 165,000) FC (145.000) 1/25 - (181,250)
Remeasurement gain P(35,000)

101. What are remeasured total assets for the subsidiary at December 31, 20x4?

a.P568,750 c.P651,750
b.P634,000 d.P672,750

102. What are remeasured 20x4 operating expenses for the subsidiary?

a.P994,500 c.P1,001,750
b.P999,500 d.P1,002,000

103. What is remeasured 20x4 net income for the subsidiary?

a. P38,250 c. P68,740
b. P45,500 d. P73,850

104, What is the subsidiary's remeasured December 31, 20x4 retained earnings
balance?

a. P218,750 c. P278,750
b. P243,150 d. P73,850

Notes for questions 101 - 104: Remeasured financial statements:

Balance sheet, 12/21/x4 FC rate Pesos
Cash receivables FC 20,000 P1.25 P 25,000
Plant & equipment, net 435,000 See below 626,750
Total asset FC 455,000 P 651,250

Liabilities FC 165.000 1.25 P 206,250

Capital stock 115,000 1.45 166,750
Retained earnings 175,000 see below 278,750
Total liabilities and equity FC 455,000 P 651,750

Income statement 20x4

Sales FC 800,000 1.30 P1,040,000

Out of pocket operating expenses (715,000) 1.30 (929,500)
Depreciation expenses (50,000) see below 73,850
Remeasurement gain 35,600
Net income FC 35,000 P73,850

105. Property was purchased on December 31, 20x6 for 20 0 million baht. the
general price index in the country was 60.1 on that date. On December 31,
20x8, 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 he property after restatement?

a. 20 million baht c. 80 million baht

b. 1,200.2 million baht d. 4,808 million baht
solution:
105. (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 PAŞ NO. 29. Thus, 20,000,000
baht x 240.4/60.1 = 80,000,000 baht.

106. Using the same information in No. 105, the following exchange r rates were
available on the following dates:

Per Baht
December 31, 20x5 ..................................................................P1.20
Average for 20x5.........................................................................1.15
December 31, 20x6.....................................................................1.22
Average for 20x6.........................................................................1.18
December 31, 20x7…………………………………………………………………...1.25
Average for 20x6………………………………………………………………………...1.23

What would be the translated peso amount in the consolidated balance

sheet on December 31,20x7?
a. P100.0 million c. 96.6 million
b. 98.4 million d. 96.0 million
solution:
106. (a) - Current rate on December 31, 20x7 should be applied to determine the translated
amount. Thus, 80,000,000 baht (refer to No. 71) x P1.25 = PI00,000,000.

107. 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 retainer earnings after
the restatement for PAS 29?
a. Revaluation reserve O, retained earnings 100
b. Revaluation reserve 100, retained earnings 0
c. Revaluation reserve 20, retained earnings 80
d. Revaluation reserve 70, retained earnings 30
solution:
107. (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.

108. Pinoy economny. Its balance sheet Pinoy Company operates in a hyperinflationary eco
Of December 3 1, 20x9, follows:

Baht ('000)
Property, plant and equipment ……………………………………………… 900
Inventory ……………………………………………………………………….. 2,700
Cash………………………………………………………………………………….. 350
Share capital (issued 20x5) ……………………………………………………. 400
Retained earnings …………………………………………………………………. 2,350
Noncurrent liabilities …………………………………………………………… 500
Current liabilities. ………………………………………………………………… 700

The general price index had moved in this way:

December 3
20x5 ………………………………………………………………..100
20x6 ………………………………………………………………...130
20x7 ………………………………………………………………….150
20x8 …………………………………………………………………..240
20x9 …………………………………………………………………..300

The property. plant and equipment was purchased on December 31,20x8, and there
is a six months' inventory held. The noncurrent liabilities were a loan raised
on March 31, 20x9. The total assets after adjusting for hyperinflation should be: (000)
 a. 1,550 c. 5,850
b. 5,150 d. 11,850
solution:
108. (b) - (000)
Property. paint and equipment (900 x 300/1 50)
1,800
inventory (2,700 x 300/270)
3.000
Cash
350
Total Asset
5,150 (b)
The inventory had been restated assuming that the index increased proportionate
Over time (i.e.. (240 + 300) /2= 27O]. the cash and loan a monetary item and therefore
not restated. if the loan had been index linked, then it would have been restated
accordance with the loan agreement.

109. Using the same information in No. 108, determine the Retained Earnings on
December 31.20x9: ('000)

a. 2,350 c. 2,937
b. 2,750 d. 7,050
solution:
109. (b)
Share capital (400 x 300/100) ………………………………………………………………. 1,200
Retained earnings, December 31, 20x8 (balancing figure) ………………………………. 2,750
Noncurrent liabilities ……………………………………………………………………………………… 500
Current liabilities ………………………………………………………………………………………….. 700
Total liabilities and Equity (same with total Assets
(refer to No. 108) ………………………………………………………………………………………. 5,150

It should be noted that share capita! is non-monetary item, so, it should be rescue

110. Using the same information in No. 108, determine the Retained Earnings on
December 31, 20x9 (in 000's) assuming the following exchange rates:
December 31
20x5 …………………………………………….P1.20
20x6 ……………………………………………...1.24
20x7 ……………………………………………...1.57
20x8 ……………………………………………….1.50
20x9 ……………………………………………….1.75

a. P4,812.50 c. P3,525.00
b. P4,125.00 d. P2,750.00
solution:
110. (a)
Assets - (000)
Property. plant and equipment (900 x 300/ 150) x Pl.75 …………………….. P3,150.00
Inventory (2.700 x 300/270) x Pl.75 ……………………………………………….. 5,250.00
Cash: 350 x PI.75 …………………………………………………………………………….. 612.50
Total Assets …………………………………………………………………………………. P9,012.50

Equity and Liabilities -

Share capital (400 x 300/100) x P1.Z5 ……………………………………………… P2,100.00
Retained earnings, December 31, 2019 (balancing figure) ………………… 4,812.50
Noncurrent liabilities: 500 x PL75 ……………………………………………………… 875.0
Current liabilities: 700 xP1.75 …………………………………………………………… 1,225.00

Total Liabilities and Equity (same with Total Assets) …………………………. P9,012.500

111. Lorikeet Corporation has a foreign subsidiary located in a country experiencing high rates
of inflation. Information concerning this Country’s inflation rate experience is given below.

Date index change in index annual rate of inflation

January 1,20x7 90
January 1,20x8 120 30 30/100 = 30.00%
January I,20x9 150 30 30/130 = 23.08%
January 20x0 210 60 60/160= 37.50%%

The inflation rate in 20x0 that is used in determining if the subsicliary is operating in a highly
inflationary economy is:
a. None C. 90.58%
b. 37,50% d. 133.33%
solution:
11. (d)
PAS NO. 29 does not establish an absolute rate at which hyperinflation is deemed io
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%.

112. (IASB-SFAS 52 versus iAS 29). A Philippine parent company consolidates Indian subsidiary,
whole functional currency is the rupee. During 20x5 the rupęe is considelidates be a
hyperinflationary currency (US GAAP tem/ highly inflationary (IFRS term). The subsidiary
owns land costing Rupee 10,000,000, acquired when the rupee was worth P0.90. At the end of
20x5. when the subsidiary’s accounts are translated into pesos for consolidates , the rupee
is worth P0.20. The general price inde4x was 100 at the doted land was acquired, and is
400 at the end of 20x5. What is the land balance at the end of 20x5, in pesos, following IFRS and
U.S. GAAP?

IAS/IFRSUS GAAP IAS/IFRS US GAAP

 a. P8,000,000 P9,000,000 C. P36,000,000 P40,000,000
b. P9,000,000 P8,000,000 d. P40,000,000 P36,000,000
solution:
112. (o]
IAS/IFRS: R10.000,000 x 400/100 x PO.20 = P8,000,000
U.S. GA AP R10,000,000 x P0.90 = P9,000,000

113. (IASB-SFAS 52 Venus IASC-IAS 29). A Phil. Company's foreign subsidiary had these amounts in foreign
currency units (FCU) in 20x6:

Cost of goods sold ………………………………………………. FCU 10,000.000

Ending inventory ………………………………………………. 500,000
beginning inventory ………………………………………………. 200,000

The average exchange rate during 20x6 was PO.80 = FCU 1. The beginning inventory was
acquired when the exchanged rate was P] = FCU 1.Ending inventory was acquired
when the exchanged rate was P0.75 = FCU 1. The exchange rate at December 31, 20x6,
was PO.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 incur in
statement?

a. P8,000,000 C. P8,065,000
b. P8,040,000 d. P8,090,000
solution:
113. - read the discussions below:
PFRS (PAS 29)
PAS 29 (IAS 29) par. 42 states that:
(d) all amounts (ie assets, liabilities, equity items, income and expenses including
Comparatives) shall be translated t the closing rate at the date oi the most
recent statement of financial position..
(b)... adjusted for subsequent changes in the price level...
Therefore, applying PAS 29, the translated amount of cost of goods sold is P8,000.000
which will re-adjusted for price index.
 MULTIPLE CHOICE THEORIES

1. Which of the following is not a foreign currency transaction?

a. Philippine Company sells computers to a company in India with payment to be made in

rupee
b. Philippine Company sells jet engines to an airplane manufacturer in Britain with
payment to be made in pesos.
c. Philippine Chemicals purchases raw materials from a supplier in Mexico with payment to
be made in pesos
d. All of the above are foreign currency transactions

2. Which of the following terms describes the change in currency values relative to one another as a
result of market conditions?

α. Exchange rate c. Floating exchange rate

b. Fixed exchange rate d. Pegged exchange rate

3. Which of the following terms describes the change in currency values relative to one another as a
result of decisions made by politicians?

α. Exchange rate c. Floating exchange rate

b. Fixed exchange rate d. Pegged exchange rate

4. Which of the following terms describes currency values relative to one another?

α. Exchange rate c. Floating exchange rate

b. Fixed exchange rate d. Pegged exchange rate

5. Which of the following statements is not accurate with regard to a purchase or sale denominated in a
foreign currency?

a. The account titles would be the same as a similar transaction undertaken with a
Philippine company
b. Future fluctuations of the foreign currency's value are not anticipated
c. The amount recorded in the financial records will be the estimated value of the foreign
currency paid or received
d. The amount recorded in the financial records is the number of foreign currency units
exchanged.
6. What is the date called when a foreign currency transaction is originally recorded

α. Origination date c. Transaction date

b. Balance sheet date d. Settlement date

7. What is the date called when a foreign currency transaction is paid through the exchange of currency?

α. Origination date c. Transaction date

b. Balance sheet date d. Settlement date

8. After a purchase or sale denominated in a foreign currency occurs, what is created on a Philippine
company's financial records as a result of the change in the exchange rate of a foreign currency?

α. Foreign currency option c. Settlement date

b. Exchange losses and gains d. Foreign currency forward contract

9. Which of the following statements is correct with regard to foreign currency transactions?

a. the company must hedge a foreign currency transaction if there is a balance sheet date
between the transaction date and the settlement date
b. When there is a balance sheet date between the transaction date and the settlement
date, the transaction is initially recorded using the projected spot rate on the settlement
date
c. An adjusting entry is required on the balance sheet date to reflect the change in the
estimated value of the monetary account associated with the transaction
d. Any gains or losses are amortized on the period from the date of the initial transaction,
until the settlement date using the effective interest method

10. Which of the following is a monetary account?

α. Accounts payable c. Unearned revenue

b. Inventory d. Prepaid rent

11. Which of the following is not a monetary account?

α. Accounts receivable c. Bonds payable

b. Accounts payable d. Unearned revenue

12. The exchange loss or gain recognized on the balance sheet date that occurs between the transaction
date and the settlement date of a foreign currency transaction is based on what exchange rates?

a. The spot rate at the transaction date and the spot rate at the balance sheet date
b. The forward rate at the transaction date and the spot rate at the balance
c. The spot rate at the transaction date and the forward rate at the balance sheet date
d. The forward rate at the transaction date and the forward rate at the balance sheet date
13. Which of the following best describes the effects of foreign currency fluctuations on the financial
statements of companies with foreign currency-denominated assets and liabilities?

a. Fluctuations in the Philippine peso value of foreign currency-denominated assets and

liabilities affect both the balance sheet and the income statement.
b. Fluctuations in the Philippine peso value of foreign currency-denominated assets and
liabilities affect only the balance sheet and have no effect in net income.
c. Fluctuations in the Philippine peso value of foreign currency-denominated assets and
liabilities affect only stockholders' equity and do not affect the income statement directly.
d. None of the above

14. Companies invest in financial derivatives:

a. To reduce exposure to currency-related risks

b. In order to realize capital gains as their value increases
c. As a means in which to enter desirable markets
d None of the above

15. If a company reports a receivable denominated in Euros (4) and the Philippine peso weakens vis-a-vis
the Euro:

a. The company will not-report the change it the relative value of the receivable, until the
receivable is collected.
b. The company will accrue the gain in its financial statements as of statement date, even
before the receivable is collected.
c. The company will accrue the loss in its financial statements as of the statement date, even
before the receivable is collected.
d. The company will recognize the increase in the Philippine peso value of the receivable on
its balance sheet as of the statement date, but the unrealized gain will not be collected.
recognized in its income statement until the receivable is

16. In recent years, the Philippine peso has:

a. Strengthened with respect to most major world currencies

b. Remain unchanged with respect to most major world currencies
c. Weakened with respect to most major world currencies
d. Weakened with respect to the Euro, but strengthened with respect to most mojor world
currencies

17. If a company reports a payable denominated in Euros (€) and the Philippine peso weakens vis-à-vis
the Euro:

a. The company will not report the change in the relative value of the payable until the
payable is paid.
b. The company will accrue the gain in its financial statements as of the statement date,
even before the payable is paid.
c. The company will accrue the loss in its financial statements as of the statement date,
even before the payable is paid.
 d. The company will recognize the increase in the Philippine peso value of the payable on its
balance sheet as of the statement date, but the unrealized loss will not be recognized in its
income statement until the payable is paid.

18. Which of the following best describes current GAAP with respect to the required reporting currency?

a. A currency other than the Philippine peso may be the reporting currency in financial
statements
b. Only the Philippine peso may be the reporting currency in financial statements
c. Companies can change their reporting currency as much as they with
d. Companies can never change their reporting currency
19. An exchange rate of P1.32: FC 1

a. Means that each Philippine peso is worth 1.32 FC

b. Implies that the Philippine peso has strengthened vis-à-vis the FC
c. Implies that the FC has strengthened vis-a-vis the Philippine peso
d. Can also be expressed as P1: FC 0.76

20. Assume that our Philippine -based company purchases 1,000 units of inventories nom a UK supplier
at £3/unit. To record the purchase:

a. Our company will debit inventories and credit accounts payable for £3,000.
b. Our company will debit inventories and credit accounts payable for the Philippine peso
equivalent of £3,000,
c. Cur company will not record the purchase of inventory until the payable is paid.
d. Either a or b is current.

21. Assume that the Philippine peso has weakened with respect to the Euro and that we have a Euro-
denominated payable.

a. Our company will report the loss only on the payment date.
b. Our company will report the gain only on the payment date,
c. Our company will not report a gain or loss because there has been no cash effect.
d. Our company will accrue a loss on the statement date.

22. Which of the following best describes the accounting for foreign currency-denominated receivables
and payables?

a. No gains or losses are recorded until the receivable is collected or the payable Is paid.
b. No gains or losses are recorded because there has been no cash effect.
c. Companies are required to report the foreign-currency denominated receivables and
payables at their current market value on the statement date, but no gain or loss is
recognized in the income statement.
d. Companies are required to accrue gains and losses on foreign currency- denominated
receivables and payments as of the statement date.
23. Assume that our company Incurs a Euro-denominated payable when the exchange rate is P65:61 and
that the Philippine peso weakens to P67:€1 before the payable is paid

a. Our company will not recognize the gain until the payable is paid.
b. Our company will not recognize the loss until the payable is paid.
c. Our company will recognize the gain on its next statement date.
d. Our company will recognize the loss on its next statement date.

24. If our company borrows money with a foreign currency-denominated loan:

a. It must record the loan and the accrued interest at the current Philippine peso value on
each statement date.
b. It must record the loan, but not the accrued interest, at the current Philippine peso value
on each statement date.
c. It must record the accrued interest, but not the loan, at the current Philippine peso value
on each statement date.
d. No adjusting entries to reflect currency fluctuations need to be made.

25. The value of the foreign currency changes from P1.54 to P1.45. Which statement is falseconcerning
changes in the value of the FC (foreign currency) in relation to the Philippine peso?

α. A Philippine company incurs a loss on its FC-denominated receivables.

b. A foreign company incurs a loss on its peso-denominated payables.
c. The Philippine peso has strengthened with respect to the FC.
d. A Philippine importer pays more pesos for merchandise paid for in FCs.

26. Interest expense on a loan denominated in another currency is converted at

a. the average spot rate for the period the interest covers.
b. the spot rate when the loan was made.
c. the spot rate when the interest is recorded.
d. the forward rate for delivery when the interest must be paid.

27. A Philippine company borrows FC (foreign currencies) 100,000,000 by issuing bonds to foreign investors
when the spot rate is P1.45/FC. The interest rate is 3 percent per annum Which of the following is false
concerning the Philippine company's accounting for this loan?

a. decrease in the P/FC will generate an exchange gain on the bonds payable.

b. If the spot rate rises to F1.55/FC one year hence, when the Interest payment la accrued, the Interest
expense will be recorded of P4.650.000.

c. lf the company desires to hedge these bonds. It will have to purchase euros forward

d. The bonds payable will be carried at P145.000.000 until they mature.

28. A Philippine company purchases medical lab equipment trom a Japanese company. The Japanese
company requires payment in Japanese yen, in this transaction, the yen would be referred to as the
a. domestic currency for the Philippine company

b. denominated currency

c. purchasing currency

d. selling currency

29. A Philippine company that has purchased inventory from a German vendor would be exposed to a net
exchange gain on the unpaid balance it the:

a. amount to be paid was denominated in pesos.

b. Peso weakened relative to the Euro and the Euro was the denominated currency.

c. Peso strengthened relative to the Euro and the Euro was the denominated currency.

d. Philippine company purchased a forward contract to buy Euros.

30. A Philippine company that has sold its product to a German firm would be exposed to a net exchange
gain on the unpaid receivable if the:

a. amount to be paid was denominated in pesos.

b. Peso weakened relative to the Euro and the Euro was the denominated currency.

c. Peso strengthened relative to the Euro and the Euro was the denominated currency.

d. Philippine company purchased a forward contract to buy Euros.

31. A bank dealing in foreign currency tells you that the foreign currency will buy you PA The bank has given
you α.

a. direct quote b. an indirect quote

c. the official (fixed) rate d. a forward rate

32. When on economic transaction is denominated in a currency other than the entity's domestic currency,
the entity must establish a

a. domestic rote b. hedge rate

c. rate of currency change d.rate of exchange

33. Foreign currency transactions not involving a hedge should be accounted for using

a. the one-transaction method.

b. the two-transaction method.

c. a hybrid of the one and two-transaction methods.

d. either the one or the two-transaction method (allowed by the FASB)

34. A transaction Involving foreign currency will most likely result in gain and losses to the reporting entity if
the

a. forward exchange contract is selling of a premium.

d. transaction is denominated in a foreign currency and measured in the reporting entity's currency.

c. transaction takes place in a country with o a tiered monetary system.

d. transaction is denominated in a foreign currency and measured in the reporting entity's currency.

35. A foreign currency transaction loss occurs on an open-account purchase from a foreign supplier
denominated in local currency units (LCU) of the foreign supplier's country if the

a. Buying spot sale for the LCU decreases between the purchase date and the payment rate

b. Selling spot rate for the LCI decreases between the purchase date and the payment date.

c. Buying spot rate for the LCU increases between the purchase date and the payment date.

d. Selling spot rote for the LCU increases between the purchase date and the payment date

36. The best definition for direct quotes would be "direct quotes measure

α. how much foreign currency must be exchanged to receive 1 domestic currency.”

b. current or spot rates"

c. how much domestic currency must be exchanged to receive 1 foreign currency."

d. exchange rates at a future point in time. currency"

37. A foreign currency transaction gain or loss is:

a. A change in the exchange rate quoted by a foreign currency dealer

b. A term synonymous with translation of a foreign currency to Philippine peso

c. The difference between the recorded Philippine peso amount of a trade account receivable or a trade
account payable denominated in a foreign currency and the amount of Philippine peso ultimately received or
paid.

d. A change from the current/noncurrent method to the monetary/nonmonetary method of remeasuring a

foreign investee’s financial statements to the U.S dollar functional currency.
38. If one FC (foreign currency) may be exchanged for P. 90 cents), the fraction to compute the exchange rate
expressed in FC is :

a1.10/1 b. 1/1.10 C. 1/0.90 d. 0.90/1

39. May foreign currency transaction gains or losses be recognized on the following transactions
denominated in a foreign currency:

Purchase of Sales of Purchase of Sales of

Merchandises? Merchandise? Merchandise? Merchandise?

a. Yes Yes c. No Yes

b.Yes No d. No No

40. A Philippine parent has a subsidiary located in Brazil, in which situation will the Philippine parent
remeasure the financial statements of the subsidiary from real to Philippine pesos?

a. The subsidiary's customers are mostly located in Brazil.

b. The subsidiary borrows money from Brazilian banks.

c. The subsidiary buys most of its merchandise from Brazilian suppliers.

d. The level of inflation in Brazil is extremely high.

41. Which of the following affects exposure to translation gains and losses?

a. investment in AFS securities c. purchase of inventory

b. borrowing money from the bank d. depreciation expense

42. Which of the following affects exposure to re measurement gains and losses?

a. investment in AFS securities c. purchases of Inventory

b. borrowing money from the bank d. depreciation expense

43. A subsidiary's functional currency is its local currency. Which of the subsidiary's transactions 44 below
will affect exposure to translation gains and losses?

a. Refinancing existing notes payable by issuing more notes payable.

b. Recording amortization expense on intangible assets

c. Borrowing money to invest in plant and equipment.

d Paying cash to invest in held-for-trading securities.

44. Which financial ratio is the same whether computed using local currency balances or translated
balances?

a. Receivables turnover (credit sales/average receivables)

b. Total assets turnover (sales/average assets)

c. Return on assets (profit/assets)

d Leverage (total labilities/total assets)

45. Re measurement gains and losses are

a. reported on the income statement.

b. reported as a direct adjustment to retained earnings.

c. reported in other comprehensive Income.

d. not reported.

46. A Philippine company consolidates a subsidiary whose accounts are reported in euros. The subsidiary's
functional currency is the euro. During the consolidation elimination entries, consolidated other
comprehensive income changes because

a. revaluation and subsequent write-off of the subsidiary's assets and liabilities change its exposure to
translation gains and losses.

b. the subsidiary now has additional available-for-sale securities which change in value

c. elimination of the investment account on the parent's books reduces the subsidiary’s assets.

d. the noncontrolling interest in the subsidiary must share in the subsidiary's equity.

47. When analyzing year-to-year changes in an international subsidiary's financial subsidiary's assets.
performance.

a. translation overstates the percentage change in local currency income.

b. remeasurement understates the percentage change in local currency income.

c. If the same exchange rate is used in both years, both remeasurement and translation accurately report the
percentage change in local currency d income.

d. if the same exchange rate is used in both years, translation accurately reports the percentage change in
local currency income, but re measurement does not.
48. A Philippine company has a subsidiary in us it the company's statement of stockholder equally reports a
credit to other comprehensive income for translation adjustments, a means that

a. the dollars has strengthened against the Philippine peso and the subsidiary functional currency is the
dollar.

b. the dollar has weakened against the Philippine peso and the subsidiary functional currency is the
Philippine peso.

c. the dollar has strengthened against the Philippine peso and the subsidiary's functional currency is the
Philippine peso.

d. the color has weakened against the Philippine and the subsidiary's functional currency is the dollar.

49. Which statement a most likely to be true concerning translation and remeasurement of me accounts of a
Philippine parent's subsidiary in Portugal? Assume the Philippine peso has been steadily strengthening
against the euro, and operating profit excludes remeasurement gains and losses

a. Remeasured operating profit as a percent of assets will be the same as local currency operating profit as a
percent of assets.

b. Remeasure operating expenses will be higher than translated operating expenses.

c. Translated total cases with be higher than remeasured total assets.

d. Remeasured operating profit as a percent of assets will be higher than translated operating profit as a
percent of assets.

50. Several years ago, a Philippine company acquired a subsidiary located in Singapore The Philippines has
been steadily weakening with respect to the Singapore dollar. Which statement is most likely to be true
concerning the translated and remeasured accounts of the subsidiary?

a. The translation loss reported in other comprehensive income has been steadily growing.

b. Re measured cost of goods sold is lower than translated cost of goods sold.

c. Remeasured sales revenue is higher than translated sales revenue.

d. Remeasured depreciation expense is higher than translated depreciation expense.

51. Assume the Philippine peso has been steadily weakening with respect to the Australian dollar. Your
client, a Philippine company with a subsidiary in Australia, wants to know the effect of the weakening
Philippine peso on its consolidated financial statements The subsidiary's functional currency is the Australian
dollar. Which statement below is true?

a. Sales revenue will be higher.

b. Translated net income will be lower.

c. Translated assets will be lower.

d. Losses will be reported in OCI.

52. A Philippine parent has a whole-owned subsidiary in US. The subsidiary’s accounts ore
reported in dollars. Under what circumstances will the Philippine parent translate the
subsidiary’s accounts from dollars to Philippine peso?
a. The subsidiary's functional currency is a currency other than the dollars are
the Philippine peso.
b. The subsidiary's functional currency is the Philippine peso.
c. US has a highly inflationary economy.
d. The subsidiary’s functional currency is the dollars.

53. A Philippine company has o Canadian subsidiary. The peso has been steadily weakening
against the Canadian dollar. If the subsidiary’s functional currency is the peso, which
statement below is most likely to be true?
a. A remeasurement gain would be reported.
b. Total assets would be higher than if the subsidiary's functional currency is the
Canadian. Dollar.
c. Remeasured operating income (sales less depreciation and out of pocket
expenses) would be higher than if the subsidiary’s functional currency is the
Canadian dollar.
d. Remeasured liabilities would be lower than if liabilities are translated.

54. What is "presentation currency," as Used in IFRS?

a. The subsidiary’s functional currency.
b. The parent company's reporting currency.
c. The currency in which the subsidiary reports its accounts.
d. The currency into which the subsidiary's accounts are remeasured, prior to translation.

55. Which of the following provides the best definition of a functional currency?
a. The currency that is the most useful to companies in order to transact business.
b. The currency of the primary economic environment in which the subsidiary
operates
c. The currency with the least fluctuation in peso value
d. None of the above

56. Which of the following statements is correct?

a. The functional currency must always be the currency of the US parent
company.
b. Non-US subsidiaries always record transactions in $US.
c. If the foreign-currency-denominated subsidiary financial statements are
already in the functional currency, but not in the parent's currency , then the
financial information must be. “translated" into the parent's currency.
d. None of the above

57. Which of the following is not a factor that must be considered in determining the functional
currency?
a. In which currencies does the subsidiary transact sales and ultimately generate its cash?
b. In which currencies does the subsidiary purchase labor, materials, and other goods and services and
ultimately expend cash?
 c. In which currencies does the subsidiary obtain its financing?
d. In which currency will fluctuations in peso value be minimized?

58. Which of the following statements is true?

a. The functional currency cannot be changed once it is selected.
b. If the functional cogency is changed, prior financial statements continue to
be reported in the previous functional currency.
c. The functional currency can be changed as .often as is deemed necessary to minimize
fluctuations in reported earing’s.
d. If the functional currency is changed, previously issued financial statements
should be restated into the new functional currency.

59. Which of the following statements is true?

a. Revenues and expenses can only be translated gt the exchange rate in
effect when recognized.
b. IFRS permits an averaging of exchange rates in order to facilitate the
translation process and prescribes a specific approach for companies use
c. Companies are required to use an averaging method that weights use.
transactions by the relative proportion of sales volume during the period.
d. Companies are permitted to Use an average exchange rate for the period
to translate revenues and expenses under the assumptions that revenues
and expenses occur evenly throughout the period.

60. Which of the following best describes current GAAP with respect to the transition process?
a. Assets and liabilities are translated at the exchange rate at the balance
sheet date regardless of when they arose.
b. Assets and liabilities are translated at the exchange rate in effect when they arose.
c. Asset are translated ot the exchange rate at the balance sheet dote, but
liabilities are translated at the exchange rate in effect with the liabilities were incurred.
d. Revenues and expenses must be translated at the exchange rate in effect then they are
recognized.
61. An exchange rate of Pi.34:i rupee:
a. Can also be expressed as P1:0.75 rupee.
b. Means that each peso is worth 1.34 rupee.
c. Implies that the peso has strengthened vis-à-vis the rupee.
d. Implies that the rupee has strengthened vis-à-vis the peso.

62. Which of the following is not a factor. that can be considered in determining company’s
functional currency?
a. Cash flows related to the foreign entity’s individual assets and liabilities are primarily in the
foreign currency and do not directly affect the percent entities’ Cash flows.
b. Sales prices for the foreign entity's products are not primarily responsive one o short-term
basis to changes in exchange rates but are determined more by local competition or local
government regulation.
c. The sales market is mostly in the parent's country or sales contracts are denominated in the
parent's currency.
d. "Use of a particular currency will minimize fluctuations in profit.
63. Which of the following best describes the translation of financial statements?
a. All asset, liability and equity accounts are translated at the current exchange
rate on the financial statement date.
b. All asset, liability and equity accounts are translated at an average exchange
rate for the period.
c. Common stock and APIC accounts are translated at their respective historic
exchange rates.
d. All equity accounts are translated at their respective historical exchange rates.

64. Which of the following best describes the Cumulative translation adjusten1?
a . the cumulative translation adjustment is a plug figure to balance e balance.
b. Changes in the Cumulative translation adjustment are reflected in net income for the
period.
c. The cumulative translation adjustment reflects changes in the fair values O marketable
securities on the balance sheet.
d. the cumulative translation adjustment can only be a positive dollar amount

65. which of the following best describes the translation of the statement of cash flows?
a. The statement of cash flows is prepared from the translated Comparative
balance sheet and income statement.
b. all line items on the statement of cash flows are translated at the current
exchange rate on the statement date.
C. translation of the statement of cash flows generally utilizes the weighted
average exchange rate for all line items except significant one-time transactions.
d. None of the above are true.

66. Which of the following are indications that the subsidiary is not autonomous?
a. Significant assets may be acquired from the parent or otherwise by expediting the parent's
functional currency.
b. the sale of assets may make available to the parent units of the parent's
functional currency.
C. Financing is primarily by the parent or otherwise in the parent's functional Currency.
d. All of the above

67. Which of the following is an indication that the subsidiary is autonomous?

a. The subsidiary borrows in the parent's functional currency.
b. The subsidiary operates in a highly inflationary economy.
c. The subsidiary primarily sells goods that are sold by the parent.
d. The subsidiary pays for its purchases using the parent's functional currency.

68. Monetary assets and liabilities are assets and liabilities:

a. Which include only cash and marketable securities
b. Which are measured at fair value
c. Whose amounts are fixed in terms of units of currency by contract or otherwise
d. All of the above

69. which of the following best describes the accounting for nonmonetary assets and liabilities?
a. They are reported at their historical cost.
b. They are reported at market value.
 c. Declines in market value are recognized, but only if other than temporary.
d. We recognize decreases in fair value, but not increases.

70. Which of the following best describes the accounting for nonmonetary assets and liabilities?
a. They are reported at fair value
b. Revenues and expenses arising from these assets are translated at historical
Cost
c. They are reported at fair value only if less than historical cost
d. None of the above are true

71. Which of the following statements is not true?

a. Gains and losses arising from remeasurement are reflected in Current Income.
b. Cost of Goods Sold is not computed as the product of the foreign currency
amount and an exchange rate.
c. There is no cumulative translation adjustment arising from the remeasurement process.
d. Remeasurement gains and losses are reflected in Other Comprehensive Income (oci).

72. Upon the sale of a foreign subsidiary:

a. The gain or loss on the sale is affected by the balance of the cumulative
translation adjustment account.
b. The gain or loss on the sale is only reflected in other comprehensive Income(OCI) not in
net income.
c. The gain or loss on the sale is not affected by the balance of the cumulative translation
adjustment account.
d. The equity adjustment account is first adjusted to current market value before
the gain or loss on sale is recognized.

73. Which of the following best describes the accounting for the net investment in a for subsidiary?
a. The net investment in a foreign subsidiary is reported at fair value.
b. Companies can hedge the net investment in a foreign subsidiary like any
other investment.
c. The net investment in a foreign subsidiary is reported on the consolidated
balance sheet at historical cost.
d. Both a and b are true

Hyperinflationary Economy
74. A hyperinflationary economy is best defined as: (US term: highly inflationary)
a. One which has a cumulative inflation of over 100% over a three-year period
b. One in which the rate of inflation is greater than that of the parent company
c. One with inflation that is greater than its neighboring countries
d. None of the above.

75. PFRS for converting the account balances of an international subsidiary in a hyperinflationary country to
the parent's presentation currency requires?
a. remeasurement of the subsidiary's accounts to the parent's presentation
Currency.
b. translation of the subsidiary's accounts to the parent's presentation currency.
 c . price-level adjustment of the subsidiary's accounts, and then remeasurement of the
accounts to the parent's presentation currency.
d. price-level adjustment of the subsidiary's accounts, and then translation of the accounts to
the parent's presentation Currency.

76. PFRS Conversion of an international subsidiary's accounts to the parent's presentation

Currency is the same as U.S. GAAP for non-hyperinflationary functional currencies?
a. With the exception that remeasurement gains and losses are reported "OCI.
b .With the exception that translation gains and losses are reported in income.
C. Win the exception that translation İs the only option: remeasurement is not allowed.
d. with no differences.