Adjustment: Firm Commitment Account balance (credit balance) –

since the P20,000 is a foreign currency loss then the firm

commitment account is a credit balance……………………… 20,000

Foreign currency gain on hedging transaction (option contract)

12/31/20x4 (inception date): Fair value of option

(P0.006 x FC 1,000,000)………………………………………… P 6,000

3/1/20x4 (expiration date) : Fair value of option

(P0.020 x FC 1,000,000)……………………………………….… 20,000 14,000

Impact on Net Income……………………………………………………. P904,197

113. d – (150,000 FC x P.05 premium = P7,500)

114. a – (150,000 FC x P.04 premium = P6,000)

115. b – (150,000 FC x P.03 premium = P4,500)

116. c – (150,000 FC x P.97 = P145,500)

117. a

Hedged Item/Commitment:

3/01/20x3: Spot rate……………………………………………..P .095

12/31/20x3: Spot rate…………………………………………….. .094

Foreign currency loss per unit…………………………………. P .001

x: No. of foreign currencies……………………………………... 2,000,000

Foreign currency loss due to hedged item/commitment..P 2,000

x: PV factor of an annuity of P1 @ for 12 periods………..… .9803

PV of foreign exchange loss due to hedged item/

commitment..………. ………………………………………. P 1,960.60

Hedging Instrument:

3/01/20x3: Fair value of Option………………………………..P 3,000

12/31/20x3: Fair value of Option6)……………………………... 3,200

Foreign currency gain on hedging transaction

(option contract)………………………………………………………… 200.00

Net impact on 20x3 income – loss (decrease)……………………..……P1,760.60

118. d

Sales (3/1/20x4 spot rate: P.089 x FC 2,000,000) …………………… P 178,000.00

Adjustment: Firm Commitment Account balance

(credit balance) – since the P12,000 is a foreign currency

loss then the firm commitment account is a credit balance 12,000.00* Adjusted
Sales…………………………………………………………… P190,000.00

Foreign exchange loss on hedged item/

commitment, 3/31/2012:

5/01/20x3: Spot rate…………………………………………P .095

3/01/20x4 Spot rate…………………………………………. .089

Foreign currency loss…………………………………. ……P .006

x: No. of foreign currencies…..……………………………. 2,000,000

Foreign currency loss for the entire hedged item

/commitment…………………………………………P 12,000*

Less: PV of foreign loss due to hedged item

/commitment………………………………………… 1,960.60 (10,039.40)

Foreign currency gain on hedging instrument

(option contract):

12/31/20x3 (balance sheet date): Fair value of option.P 3,200

3/01/20x4 (expiration date) : Fair value of option