FOREIGN CURRENCY

TRANSACTIONS, BALANCES,
FINANCIAL STATEMENTS, AND
HEDGES.
 CURRENCY EXCHANGE RATES
A) Directly quoted: expressed in one unit of the foreign currency into so
many
units of the functional currency, i.e.:
$1 : P 40

B) Indirectly quoted: expressed in one unit of the functional currency into so

many units of the foreign currency, i.e.:
P1 : $.025

C) To apply, for example:

$ to Direct Quotation : $1,000 x P40 = P40,000
PhP Indirect Quotation : $1,000 / $.025 = P40,000
FOREIGN CURRENCY TRANSACTIONS
Exporting and Importing

and FOREIGN CURRENCY BALANCES

Problem 1 (Importing Transaction)
11/01/18 Equipment (peso) P1,479,156
SR:- Accounts payable (dirham) P 1,479,156
12.3263 (D 120,000 x P12.3263)

12/31/1 Foreign exchange loss 444

SR:- Accounts payable 444
12.3300 (12.3300 – 12.3263) x D120,000

01/30/19 Accounts payable (dirham) 1,479,600

SR:- Foreign exchange loss 1,392
12.3416 Cash (dirham) 1,480,992
Loss: (D 120,000 x P0.0116)
Cash: (D 120,000 x 12.3416)
 Problem 2 (Exporting Transation
12/10/18 Accounts receivable (kroner) P664,784
SR: P8.3098 Sales (peso) P664,784
(Kroner 80,000 x P8.3098)
12/31/18 Accounts receivable (kroner) 2,136
SR: P8.3365 Foreign exchange gain 2,136
(Kroner 80,000 x P0.0267)

02/28/19 Cash (kroner) 660,920

SR: P8.2615 Foreign exchange loss 6,000
Accounts receivable (kroner) 666,920
Loss: K80,000 x P 0.075
Cash: K80,000 x P8.2615
EFFECTS OF CHANGES IN FOREX RATES
ON EXPOSED FOREIGN CURRENCY MONETARY ITEMS

Liability (FC) Asset (FC)

When peso strengthens Gain Loss
When peso weakens Loss Gain
 FOREIGN CURRENCY HEDGES
 By Non-Derivative hedging instruments
 By Derivative hedging instruments
Thru
a. Forward Exchange Contracts
b. Option Contracts
 Problem 4 – Hedged Item
FCT: Sale of mdse for $80,000

10/01/18 Accounts receivable ($) P3,708,000

P46.35 Sales (P) P3,708,000
($80,000 x P46.35)

12/31/18 Foreign exchange loss 28,000

P46.00 Accounts receivable ($) 28,000
($80,000 x P 0.35)

03/31/19 Foreign exchange loss 32,000

Cash ($) 3,648,000
P45.60 Accounts receivable ($) 3,680,000

Cash ($) ($80,000 x P45.60) 4,560,000

Loss ($80,000 x P 0.40) 32,000
 Problem 4: Forward Contract to sell
$80,000 as hedge of a FC Asset
10/01/18 C/R (PhP) 3,704,000
FR-46.30 C/P (US$) 3,704,000
($80,000 x P46.30)

12/31/18 C/P (US$) 40,000

FR-45.80 Forex gain 40,000
($80,000 x P0.50)

03/31/19 C/P (US$) 3,664,000

SR-45.60 Forex gain 16,000
Cash (US$) 3,648,000

Cash (PhP) 3,704,000

C/R (PhP) 3,704,000
Problem 4-b (FV of Forward Contract based on SR)

10/01/18 C/R(PhP)/FR 3,704,000

SR-P46.35 Deferred Discount on FC 4,000
C/P(FC)/SR 3,708,000

12/31/18 C/P(FC) 28,000

SR-P46.00 Foreign exchange gain 28,000

Discount expense 2,000

Deferred Discount on FC 2,000

03/31/19 C/P(FC) - BCV 3,680,000

SR-P45.60 Foreign exchange gain 32,000
Cash (FC) 3,648,000

Cash (PhP) 3,704,000

C/R(PhP) 3,704,000

Discount expense 2,000

Deferred discount on FC 2,000
 Problem 5
Hedged Item: Purchase of inventory for
FC100,000 on account
11/02/18 Inventory (Peso) P55,000
SR P0.55 Accounts payable (FC) P55,000
(FC100,000 x P0.55)

12/31/18 Foreign exchange loss P1,000

SR P0.56 Accounts payable (FC) P1,000
(FC100,000 x P0.01)

01/31/19 Accounts payable (FC) 56,000

SR P0.55 Foreign exchange gain P1,000
Cash (FC) 55,000
Cash (FC100,00 0 x P0.55)
Gain (FC100,000 x P0.01)
 Problem 5( Derivative Forward Contract)
This is an executory contract..
FR- .57 No entry. FV of FEC is nil.

Forward Contract 1,000

FR- .58 Foreign exchange gain 1,000

Foreign exchange loss 3,000

SR- .55 Forward contract 3,000

Forward contract 2,000

Cash 2,000
 Changes in the fair values of a forward
contract after inception date
Current FR is MORE than Current FR is LESS than
Contracted Forward Rate (FR) Contracted Forward Rate (FR)
(the Peso weakens) (the Peso strengthens)

Forward 1. Fair value is positive 1. Fair value is negative

Purchase 2. A gain is recorded 2. A loss is recorded
Contract 3. In the balance sheet the 3. In the balance sheet the
FC is an asset FC is a liability
4. Cash is received upon expiry. 4. Cash is paid upon expiry.

Forward 1. Fair value is negative 1. Fair value is positive

Sales 2. A loss is recorded 2. A gain is recorded
Contract 3. In the balance sheet the 3. In the balance sheet the
FC is a liability FC is an asset
4. Cash is paid upon expiry. 4. Cash is received upon expiry.
SPECULATIVE FORWARD EXCHANGE CONTRACT
Gross Method Net Method
12/01/18 Debit Credit Debit Credit

FR – P54.00
Contract receivable P1,080,000 No entry, FV zero.
Contract payable P1,080,000
($20,000 x P54.00)

12/31/18
FR – P53.80
Contract payable (FC) 4,000 Forward contract P 4,000
Exchange gain P 4,000 Exchange gain P 4,000
($20,000 x P0.20)
SPECULATIVE FORWARD EXCHANGE CONTRACT
03/01/19 Debit Credit Debit Credit
SR - P53.70
Contract payable (fc) 2,000 Forward contract P 2,000
Exchange gain 2,000 Exchange gain 2,000

($20,000 x P0.10)

Contract payable (fc) 1,074,000

Cash (fc) 1,074,000 Cash (PP) P 6,000
Forward contract P 6,000
Cash (PP) 1,080,000
Contract receivable (PP) 1,080,000
6. FOREIGN CURRENCY SALES TRANSACTION

12/01/18 Accounts receivable (FC) 320,000

SR – P0.320 Sales (Peso) 320,000

(FC 1,000,000 x P0.320)
12/31/18 Accounts receivable (FC) 10,000

SR – P0.330 Foreign exchange gain 10,000

(FC 1,000,000 x P0.010)

03/01/19 Cash 300,000

SR – P0.300 Foreign exchange loss 30,000

Accounts receivable (FC) 330,000
Cash - (FC1,000,000 x P0.300)
Loss – (FC1,000,000 x P0.030)
6.1 SALES FORWARD CONTRACT – DESIGNATED
AS FAIR VALUE HEDGE
12/01/18 No entry. Fair value of forward contract is nil at inception.

FR – P0.305

12/31./18 Foreign exchange loss P10,783

FR – P0.316 Forward contract P10,783

(P11,000 x .9803)

03/01/97 Forward contract 15,783

SR – P0.300 Foreign exchange gain 15,783

[(P5,000 x 1)] + P10,783
Cash 5,000
Forward contract 5,000
6.2 SALES FORWARD CONTRACT – DESIGNATED
AS CASH FLOW HEDGE

12/01/18 No entry. Fair value of forward contract is zero at the beginning

FR – P0.305

12/31/18 AOCI P10,783

FR – P0.316 Forward contract P10,783
(P11,000 x P.9803)

Loss on forward contract 10,000

AOCI 10,000

Discount expense 5,000

AOCI 5,000
6.2 SALES FORWARD CONTRACT – DESIGNATED
AS CASH FLOW HEDGE

03/01/19 Forward contract 15,783

SR – P0.300 AOCI 15,783

AOCI 30,000
Foreign exchange gain 30,000
Discount expense 10,000
AOCI 10,000

Cash 5,000
Forward contract 5,000
Option Contracts

From the Standpoint of the Option Holder

Case A Case B Case C

Market Price 1.20 1.28 1.12
(Spot Rate)
Exercise Price 1.20 1.20 1.20
(Strike Price)

At the In the Out the

Call Option
Money Money Money
At the Out the In the
Put Option
Money Money Money
 Problem 7 (Hedge of a FC Asset by
PUT Option Contract)
For the hedged item (FCT), Sale of mdse for FC 800,000 on account.
SR–1.32
Accounts receivable (FC) 1,056,000
Sales (PhP) 1,056,000
(FC800 000x P1.32)
Accounts receivable (fc) 8,000
SR-l.33
Foreign exchange gain 8,000
FC800,000 x (1.33 – 1.32)

Cash (FC) 1,040,000

SR-1.30
Forex loss 24,000
Accounts receivable (FC) 1,064,000
 Problem 7: Hedge of a FC Asset by a Put
Option Contract.
For the Hedging Instrument, a PUT Option
Foreign currency Option 7,200
MP-1.32 Cash 7,200

Loss on time value 2,400

MP-1.33 Foreign currency option 2,400
(P7,200/3 months) x 1
Note: No adjustment on intrinsic
value because the option is
Out-of-the-money at this point

Loss on time value 4,800

Foreign currency option 4,800
MP-130
Foreign currency option 16,000
Gain on intrinsic value 16,000

Loss on TV (P9,000 / 3 months) x 2

Gain on IV [FC 800,000 x (1.32 – 1.30)]

Cash 16,000
Foreign currency option 16,000
 Hedge of a Firm Commitment for the Sale of
Merchandise by Forward Contract.
Problem 8-a. Fair value at forward rates.

For the Hedged Item, the Firm Commitment

12/01/18 Date the agreement is signed between the parties.

FR–P1.305 No entry.

12/31/18 Firm Commitment 10,783

FR-P1.316 Gain on firm commitment 10,783
(P11,000 x .9803)

03/01/19 Loss on firm commitment 15,783

SR-P1.30 Firm commitment 15,783
[(1,000,000 x .005 x 1) + 10,783]

Cash (FC) 1,300,000

Firm Commitment 5,000
Sales 1,305,000
 Hedge of a Firm Commitment for the sale of
Merchandise by Forward Contract
Problem 8
For the Hedging Instrument – Sales Forward Contract

12/01/18 No entry. This is an executory contract. No

FR-P1.305 cash changed hands. No fair value at inception.

12/31/18 Loss on forward contract 10,783

FR-P1.316 Forward Contract 10,783
(P1,316,000 – P1,305,000) x 0.9803

03/01/19 Forward Contract 15,783

SR-P1.300 Gain on forward contract 6 15,783
FV (P1,305,000 – P1,300,000) x 1 = P5,000
Gain (P10,783 + P5,000)

Cash 5,000
Forward contract 5,000
Problem 9. Hedge of a Forecasted Cash Trans.
For the Purchase Forward Contract
12/01/18 No entry. FV of FEC is nil.
FR-P1.305

12/31/18 Forward Contract 8,627

FR-P1.316 AOCI 8,627
(P8,800 x 0.9803)

03/31/17 AOCI 12,627

SR-P1.300 Forward Contract 12,627

Forward contract 4,000

Cash 4,000
 Forecasted Cash Transaction

No entries until the actual transaction occurs at delivery date.

03/01/19 Equipment 1,040,000

SR-1.300 Cash (FC) 1,040,000

Equipment 4,000
A0CI 4,000
 TRANSLATION of FOREIGN CURRENCY
FINANCIAL STATEMENTS

1. REMEASUREMENT from LOCAL CURRENCY FS to

FUNCTIONAL CURRENCY FS by the Temporal
Method.

2. TRANSLATION from FUNCTIONAL CURRENCY

FS to PRESENTATION CURRENCY FS by the
Current Rate Method.
 “Local Currency” is the currency in which the entity
INITIALLY measures and records its transactions. It is
the currency of the country wherein the entity is
located.
 “Functional Currency” is the currency that affects
the economic wealth of the entity. It is the required
FINAL measurement of its transactions. It is usually,
also, the “Local Currency”.
 “Presentation Currency” is the currency in which the
financial statements of the entity are presented. It
is usually, also, the “Functional Currency.”
 How to determine the functional currency
First level: 3 Primary factors
Sales and cash inflow
This mainly influences the prices at which goods and services are
sold. This will often be the currency in which sales prices for goods
and services are denominated and settled.
The country whose competitive forces and regulations mainly
influence the entity’s price structure. Example: where government
regulations determine that the local currency is the functional
currency.
Expenses and cash outflow
The expenses and cash outflow that influence the cost of the entity. The
currency that mainly influences purchases, materials, labour and other
costs of providing goods and services
Secondary indicators - designed to provide additional supporting evidence
in the determination of an entity’s functional currency.
Financing activities
The finance activities in which funds are generated. Example, where
financing (issuing of debt and equity instruments) is raised and serviced
by a currency type (i.e. SGD). This indicates that SGD is the functional
currency in the absence of other indicators to the contrary.
Retention of operating income
In which receipts from operating activities are retained. This is the
currency in which the entity maintains its excess working capital
balances.
GENERAL TRANSLATION RULES

 If the LOCAL CURRENCY is not the FUNCTIONAL CURRENCY, a

re-measurement to the FUNCTIONAL CURRENCY is MANDATORY.
Use the TEMPORAL METHOD to re-measure the financial
statements (see Par D)

 If the FUNCTIONAL CURRENCY will not be the PRESENTATION

CURRENCY, a translation to the PRESENTATION CURRENCY is
NECESSARY. Use the CURRENT RATE METHOD to translate the
financial statements. (See Par E)
 Local Currency, Functional Currency
and Presentation Currency
LOCAL REMEASURE FUNCTIONAL REQUIRED PRESENTATION
CURRENCY MENT CURRENCY TRANSLATION CURRENCY
Philippine Ph Peso None needed Ph peso None needed Ph peso
Parent
Thailand
Subsidiary:
Case (A) Th Baht None needed Th Baht Current Rate M Ph Peso
Case (B) Th Baht Temporal M Ph Peso None needed Ph Peso
Case (C) Th Baht Temporal M Jp Yen Current Rate M Ph Peso
CURRENT RATE METHOD TEMPORAL METHOD
ASSET AND LIAB Current Rate ASSET AND LIAB
Monetary Current Rate
Non Monetary and
related accounts Historical
EQUITY EQUITY
Common Shares Historical Rate Common Shares Historical Rate
APIC Historical Rate APIC Historical Rate
RE by components RE by components
Dividends Historical Rate Dividends Historical Rate
Rev & Exp Historical (Ave) Rev & Exp Historical (Ave)
COS by components
Dep and Amort Exp Historical
 Translation of Foreign Currency
(Current-Rate Method)

Problem 11: Functional Currency FS translated to Presentation Currency FS

Income Statement
FOREIGN
For Year ended December 31, 2019
FC Trns Rate PHL PESO
Sales 3,200,000 P0.65 2,080,000
Cost of goods sold (2,400,000) 0.65 (1,560,000)
Gross profit 800,000 520,000
Depreciation expense ( 80,000) 0.65 ( 52,000)
Amortization expense ( 8,000) 0.65 ( 5,200)
Other expenses ( 176,000) 0.65 ( 114,400)
Income before tax 536,000 348,400
Income taxes ( 160,000) 0.65 ( 104,000)
Net income 376,000 244,400

OR P 376,000 X .65 = 305,500

 FOREIGN
Statement of Retained Earnings
For Year ended December 31, 2019
FC Trns Rate PHL PESO
Retained earnings, 1/1/19 0 0
Net income, 2019 376,000 Computed 244,400
Dividends, 2019 ( 120,000) P0.67 ( 80,400)
Retained earnings, 12/31/19 256,000 164,000
 FOREIGN
Balance Sheet
As of December 31, 2019
FC Trns Rate PHL PESO
Cash 104,000 P0.70 P 72,800
Accounts receivable 160,000 0.70 112,000
Inventory 320,000 0.70 224,000
Plant and equipment, net 720,000 0.70 504,000
Patents, net 32,000 0.70 22,400
Total assets 1,336,000 P 935,200

Accounts payable 480,000 0.70 P 336,000

Long-term-debt 200,000 0.70 140,000
Capital stock 80,000 0.60 48,000
APIC 320,000 0.60 192,000
Retained earnings 256,000 computed 164,000
Cum translation adjustment - - 55,200
Total Liabilities & SHE 1,336,000 P 935,200
Computation of Change in CTA for 2019

FC Trns Rate PHL PESO

Stockholders’ Equity @ 1/01/19 400,000 0.60 240,000
Net income 376,000 0.65 244,400
Cash dividends (120,000) 0.67 (80,400)
SHE, 12/31/19 404,000
Net assets @ 12/31/19 656,000 0.70 459,200
Change in CTA for 2019 55,200
--
P 55,200
CTA, 12/31/19
10.b REMEASUREMENT by the TEMPORAL METHOD.
FOREIGN COMPANY
BALANCE SHEET
December 31, 2019

Assets FC Rem Rate Phil. Peso

Cash 104,000 P0.70 CR P 72,800
Accounts receivable 160,000 0.70 CR 112,000
Inventory 320,000 0.68 HR 217,600
Property and equipment 800,000 0.61 HR 488,000
Less: Accum. depreciation ( 80,000) 0.61 HR ( 48,800)
Patents, net 32,000 0.62 HR 19,840
1,336,000 P 861,440
 FOREIGN COMPANY
BALANCE SHEET
December 31, 2019
Liabilities and Equities FC Rem Rate Phil. Peso
Accounts payable 480,000 P0.70 CR P 336,000
Long-term-debt 200,000 0.70 CR 140,000
Common stock 80,000 0.60 HR 48,000
APIC 320,000 0.60 HR 192,000
Retained earnings 256,000 to balance 145,440
1,336,000 P 861,440
 FOREIGN COMPANY
Statement of Retained Earnings
For year ending December 31, 2019

Retained earnings, Jan 1 - - -

Net income FC 470,000 to balance P 225,840
Dividends (120,000) P0.67 HR ( 80,400)
Retained earnings, Dec 31 FC320,000 computed P145,440
Schedule 1. Statement of Cost of Goods Sold.

Inventory, Jan 1, 2019 FC 120,000 P0.60 HR P 72,000

Purchases in 2019 2,600,000 0.65 AR 1,690,000
Inventory, Dec 31, 2019 ( 320,000) 0.68 AR (217,600)
COGS, in 2019 FC2,400,000 P1,544,400
 FOREIGN COMPANY
Income Statement
For Year ending December 31, 2019
FC Rem Rate Phil. Peso
Sales 3,200,000 P0.65 AR P 2,080,000
Cost of goods sold (Sch. 1) (2,400,000) computed 1,544,400
Gross profit 800,000 P 535,600
Depreciation expense ( 80,000) 0.61 HR ( 48,800)
Amortization expense ( 8,000) 0.62 HR ( 4,960)
Other expenses ( 176,000) P0.65 AR (114,400)
Income before tax 536,000 367,440
Income taxes ( 160,000) 0.65 AR (104,000)
Remeasurement loss to balance ( 37,600)
Net income 376,000 P 225,840
COMPUTATION OF REMEASUREMENT LOSS
Net monetary assets, 1/1/19 FC 280,000 x P0.60 P 168,000
Increase in monetary assets : Sales 3,200,000 x 0.65 2,080,000
Decrease in monetary assets and increase

In monetary liabilities: Purchases, 2019 (2,600,000) x 0.65 (1,690,000)

Other expenses, 2019 (176,000) x 0.65 ( 114,400)

Income taxes, 2019 (160,000) x 0.65 ( 104,000)
Property & Equipment ( 800,000) x 0.61 ( 488,000)
Patent ( 40,000) x 0.62 ( 24,800)
Dividends (120,000) x 0.67 ( 80,400)

Net monetary liabilities, 12/31/19 FC ( 416,000) P ( 253,600)

Net monetary liabilities at current rate FC ( 416,000) x 0.70 P ( 291,200)
Remeasurement loss P ( 37,600)
 Computation of change in CTA for 2019 and
Cumulative Balance at 12/31/19
PROBLEM 10

Net assets, 1/1/19 FC 1,200,000 * P1.85 P2,220,000

Net Income in 2019 FC 380,000 * P1.78 676,400
Total SHE P2,896,400
Net assets, 12/31/19 FC1,580,000 * P1.70 P2,686,000
Transaction loss for 2019 P (210,400)
FC trans. reserve, 01/01/19 15,000
FC Translation Reserve, 12/31/19 P (195,400)
 Hedge of Net Invest. in Foreign Entity
Problem 10.
01/01/19 Cash P 2,220,000
SR-P1.85 Loan payable P2,220,000
(FC 1,200,000 x P1.85)
12/31/19
SR-P1.70 Interest expense 106,800
Accrued interest 106,800
(FC 1,200,000 x 5% x P1.78)
Accrued interest 106,800
Cash (60,000 x 1.70) 102,000
Foreign exchange gain 4,800
Loan payable 180,000
Forex translation reserve 180,000
(P1,000,000 x P0.15)

Loan payable 2,040,000

Cash (FC 1,200,000 x P1.70) 2,040,000
 Multiple Choice
1. B

This is an Accounts Payable in foreign currency.

Therefore, when the peso weakens to the re-measurement point(s) a

foreign exchange loss is recognized. If the peso strengthens,
a gain is recognized.

2017: (P0.4245 vs P0.4295) = + .0050 x JY50,000 = P(250)

2018: (P0.4295 vs P0.4250) = - .0045 x JY50,000 = P 225
Ovrol: (P0.4245 vs P0.4250) = + .0005 x JY50,000 = P( 25)
 Multiple Choice
2. A

This is an accounts payable in foreign currency. Please take note that the exchange
rates are indirectly-quoted.

Gain/(Loss)
Peso equivalent, 10/01/17: $10,000 divide by $0.018 P555,555
Peso equivalent, 12/31/17: $10,000 divide by $0.017 588,235 P(32,680)
Peso equivalent, 04/01/18: $10,000 divide by $0.020 500,000 P 88,235
OVERALL (P555,555 vs P500,000) P55,555
 Multiple Choice
3. D

This is an Accounts Receivable In foreign currency.

Gain (Loss)
Peso equivalent, 07/01/17 (given) P308,000
Peso equivalent, 12/31/17 (given 328,000 + P20,000
Peso equivalent, 07/01/18 ($8,000 x P39) 312,000 - P(16,000)

OVERALL (P308,000 less P312,000) + P 4,000

 Multiple Choice
4. D

We assume the LOCAL currency is the FUNCTIONAL currency if the latter is

not specified. Therefore, we use the CURRENT RATE method in translating
all these assets into the parent’s PhlP functional and presentation currency.

Total assets (P120,000 + P 55,000 + P 75,000) P250,000

Multiple Choice
5. B

Because the local currency (HK$) is not the functional currency (PhlP) of
the Hongkong Subsidiary, a remeasurement (by the Temporal Method) must
precede the translation to the presentation currency (by the Current Rate
Method). The latter is avoided because the functional currency and the
presentation currency are both in Philippine peso.

Depreciation expense (HK$120,000 x P5.50) P 660,000

Provision for doubtful accounts (P80,000 x P5.44) P 435,200
Rent expense (P200,000 x P5.44) 1,088,000 1,523,200
Total peso expenses P2,183,200

Note: If the 2nd paragraph is omitted, the current rate method is used instead:
[(HK#120,000 + HK$80,000 + HK$200,000) x 5.44] P2,176,000
 Multiple Choice
6. A

Net assets (FC100,000 less FC20,000) x P3.40 P 272,000

Less Stockholders’ equity:
Common stocks (P50,000 x P3.10) P155,000
Retained earnings (given) 92,000 247,000
Cumulative translation adjustment (credit) P 25,000
Multiple Choice
7. B

The foreign currency amount on the Forward Contract is a RECEIVABLE,

therefore:

Peso equivalent at FR on March 1, 2017 (B100,000 x P1.650) P165,000

Peso equivalent at SR on May 30, 2017 (B100,000 x P1.600) 160,000
Forex loss (P1.650 vs P1.600) = - 0.050 x B100,000 P 5,000
 Multiple Choice
8. D

The foreign currency amount on the hedged item is a PAYABLE:

Peso equivalent at SR, 12/01/16 (FR1,000,000 x P6.01) P6,010,000
Peso equivalent at SR, 12/31/16 (FR1,000,000 x P6.16) 6,160,000 (P150,000)

The foreign currency amount on the hedging instrument is a

RECEIVABLE:
Peso equivalent at FR, 12/01/16 (FR1,000,000 x P6.06) P6,060,000
Peso equivalent at FR, 12/31/16 (FR1,000,000 x P6.07) 6,070,000 10,000

Net foreign exchange difference (P140,000)

Multiple Choice
9. B

The foreign currency amount in the forward contract is a RECEIVABLE

Peso equivalent at FR, 10/01/16 (FC5,000 x P56.50) P282,500

Peso equivalent at SR, 03/31/17 (FC5,000 x P56.32) 281,600
Exchange difference overall
(Income statement date not specified) - P 900 loss
Multiple Choice
10. D

The foreign currency amount in the futures contract is a PAYABLE

Peso equivalent at FR, 11/01/16 (FC10,000 x P0.78) P 7,800

Peso equivalent at FR, 12/31/16 (FC10,000 x P0.82) 8,200
Exchange difference (P0.78 vs P0.82) = + P0.04 x FC10,000 P ( 400)
Suggested solutions to Problems 11 and 12

11. B
Baht 500,000 * P1.28 P640,000

12. B
Time value (P 3,000 - P1,000) P 2,000
Intrinsic value (P1.28 – P1.20) * Baht 500,000 40,000
Total fair value P 42,000
Suggested solutions to Problems 13 and 14
13. C
On A/P (P1.28 – P1.27) * Baht 500,000 P 5,000
On Call Option: Time value P(2,000)
Intrinsic value (5,000) (7,000)

Net loss P(2,000)

14. B
Intrinsic value (P1.27 – P1.20) * Baht 500,000 P35,000
Suggested solutions to Problems 15 thru 17

15. A
The total premium paid P 3,000

16. C
Intrinsic value (P1.28 – P1.20) * Baht 500,000 P40,000

17. C
Time value (fully expired) P 0
Intrinsic value (before net cash settlement) 35,000
Total fair value settled by cash payment P 35,000