AFAR: ACCOUNTING FOR FOREX & DERIVATVES

1. On July 24, 2019, Mabait Company, ordered a merchandise from Lok-Hang-Jo-a

Company from China, for 31,800 Chinese Yuan. The Merchandise was delivered on
December 18, 2019. The invoice was dated December 2, 2019 FOB Shipping Point.
Mabait, Co paid the invoice on January 28, 2020.
The following rates for Chinese yuan on the respective dates were:
Buying Rates Selling Rates
July 24, 2019 P 7.68 P 7.69
December 2, 2019 7.62 7. 62
December 18, 2019 7.55 7.56
December 31, 2019 7.21 7.23
January 28, 2020 7.30 7.32

 At what amount should the merchandise purchased be reported in 2019?

 What amount should be reported as liability on December 31, 2019?
 What amount will affect the profit or loss in 2019?
 What amount will affect the profit or loss in 2020?
 What amount of forex gain or loss should be recorded on January 28, 2020?
 The cost of delaying the payment is amounted to:
 How much local currency unit will it cost the Mabait Company to finally pay the
account on January 28, 2020?
 Provide a journal entry at the date of settlement.

2. On September 3, 2010, Connelly placed a non-cancelable purchase order with a Japanese

Company for a machine. The contract price was 1, 000, 000 yens. The machine was
delivered on December 23, 2010. The invoice was dated November 13, 2010, FOB
Shipping Point. The seller was paid on January 7, 2011. The spot direct exchange rates
are as follows:
09/03/2010 11/13/2010 12/23/2010 12/31/2010 01/7/2011
P.20 P.21 P.22 P.23 P.24

 What amount is the capitalizable cost of the equipment?

 What amount of forex gain or loss should be recorded on 2010 income statement?
 What is the reported value of the payable to the vendor at December 31, 2010?
 How much is the cost of delay in the importation?
 3. On April 01, 2010, SMP Company imported 10,000,000 barrels from an Indonesian
Company at a price of P 3,185 per barrel payable in Indonesian rupiah. The invoice was
paid 30 days later. Indirect exchange rates for Indonesian rupiah were:
April 01, 2010: P1 = 132 Rupiah
April 30, 2010: P1 = 130 Rupiah
 What is the cost of the oil?
4. During May 2015, Jobert Corporation had the following transactions with foreign
businesses:
Date Nature of transaction Billing Currency Direct Exchange rates

VENDOR A:
5/1/15 Imported merchandise Rupees P.82
costing 100,000 rupees
from Pakistan
wholesaler

5/10/15 Paid 40% of amount .83

owed
5/31/15 Paid remaining amount .78
owed
Customer A:
5/15/15 Sold merchandise for Syrian pound P.95
50,000 pound to Syrian
wholesaler
5/20/15 Received 20% payment .90
5/30/15 Received remaining .91
amount owed.

 What is the capitalized cost of inventory purchase from the Pakistan wholesaler?
 What is the forex gain or loss on May 10, 2015 transaction arising from the Pakistan
wholesaler?
 What is the forex gain or loss on May 31, 2015 transaction arising from the Pakistan
wholesaler?
 What is reportable sales amount on the income statement in 2015?
 What is the forex gain or loss on May 20, 2015 transaction arising from the Syrian
wholesaler?
 What is the forex gain or loss on May 30, 2015 transaction arising from the Syrian
wholesaler?

5. Filipino Corp. bought inventory items from a supplier in Germany on November 5, 2016
for 100,000 marks, when the spot rate was P21. At Filipino’s December 31, 2016, year-
 end, the spot rate was P20.5. On January 15, 2017, Filipino bought 100,000 marks at the
spot rate of P20.90 and paid the invoice. How much should Filipino report in its income
statements for 2016 and 2017 as forex gain or (loss)?
6. BDO commenced relationship with Michigan Bank of USA in October, 2020. The
following are their transactions during the month:
Debits:
Oct. 01 Remittance, cable = $1,000 (P56.30/US$)
Oct. 15 Remittance, cable = $1,000 (P56.35/US$)
Credits:
Oct. 10 Demand draft = $1,000 (P56.30/US$)
Oct. 25 Sight draft = $500 (P56.45/US$)
 If the prevailing exchange rate on Oct. 31 was P56.75/US$, the respective
balances, on this date, for BDO and Michigan Bank are: BDO:P________ and
Michigan:$__________

7. Lino Co. records its transaction in pesos. A sale of goods resulted in a receivable
denominated in Japanese yen, and a purchase of goods resulted in a payable denominated
in French francs. Lino Co. recorded a forex gain on the collection of receivable and a
forex 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 for P1 Francs for P1

a. Increase Increase
b. Decrease Decrease
c. Decrease Increase
d. Increase Decrease

8. On October 17, 2017, Shirley purchased from a Thailand firm an inventory costing
100,000 baht. Payment due on January 15, 2018. Also on October 17, Shirley entered
into a foreign exchange forward to buy 10,000 baht on January 15, 2018.
10/17/17 12/31/17 1/15/18
Spot rate (baht) P1.30 P1.42 P1.40
Forward rate (baht) 1.30 1.42 1.40
 FOREX gain or loss due to hedging instrument contract, 12/31/17. _______
 FOREX gain or loss due to hedged item, 12/31/17. _______

9. On October 17, 2017, Shami purchased from a Thailand firm an inventory costing 10,000
baht. Payment due on January 15, 2018. Also on October 17, Shami entered into a
foreign exchange forward to buy 10,000 baht on January 15, 2018.
 10/17/17 12/31/17 1/15/18
Spot rate (baht) P1.30 P1.42 P1.40
Forward rate (baht) 1.36 1.43 1.40
 What is the fair value of the forward contract on December 31, 2017?
 What is the fair value of the forward contract on January 15, 2018?
 What is the net impact on Shami’s income statement in 2018 as a result of this
hedge?
 Provide journal entries for Hedging instrument at inception date.

10. On October 2, 2017, Quinn Agnes, Inc. ordered a van from a Japanese firm. The
purchase order is non-cancelable. The purchase price is 1 Million yens with delivery and
payment to be on March 31, 2018. On October 2, 2017, Quinn Agnes entered into a
forward contract to buy 1 Million yens on March 31, 2018 for P.57. On March 31, 2018,
the van was delivered.

If accounted for as fair value hedge:

 The December 31, 2017 profit and loss statement, net foreign exchange gain or
loss (forward contract and commitment) amounted to: __________
 The firm commitment account balance as shown in the December 31, 2017
balance sheet amounted to: _______
 What is the fair value of the forward contract on 12/31/17? _________
 What is the fair value of the forward contract on 03/31/18? _________
 The firm commitment account balance on 03/31/18 amounted to:___________
 The value of equipment on 03/31/18? ________
If Accounted for as Cash Flow Hedge:
 The 12/31/17 P&L statement, forex gain or loss on hedged item/commitment
amounted to: ____________
 The 12/31/17 forex gain or loss on the hedging instrument (forward contract)
amounted to: ______________
 The firm commitment account balance amounted on 03/31/18 amounted to:
____________
 The value of the equipment on 03/31/18 assuming that Quinn Agnes, Inc. has
elected to and adjust the cost of non-financial items acquired: _____________
11. On 12/01/17, Pinoy Corp. estimates that atleast 5,000 units of inventory will be
purchased from a company in Taiwan during January of 2018 for 500, 000 Nt dollars.
The transaction is probable, and it is to be denominated in NT Dollar. Sales of the
inventory are expected to occur in the six months following the purchase.

The company enters into a forward contract to purchase 500, 000 NT Dollars on
01/31/2018 for P1.01.
Spot rates and forward rates at January 31, 2018, settlement were as follows:
SPOT RATE FORWARD RATE 1/31/18
12/01/17 P1.03 P1.01
12/31/17 1.00 .99
01/31/18 .98

 The 12/31/17 forex loss on hedging instrument is: _____________

 On 01/31/18 forex gain or loss on hedging instrument is: _____________
 Suppose that in February, the inventory was sold for P600,000, what would be the
gross profit assuming any adjustments (if any) regarding exchange differential
will be thru COGS account: ______