This Proc Edur e Woul D Be Not Be Appli Cable Wher e The

d.
P
23
3.
52
5
*this
proc
edur
e
woul
d be
not
be
appli
cable
wher
e the
NCI
on
good
will
impa
irme
nt
loss
woul
d not
be
prop
ortio
nate
to
NCI
acqui
red.
e.
P
21
,1
75
–
re
fe
r
to
(d
)
fo
r
co
m
pu
tat
io
ns
N
ot
e:
R
eg
ar
dl
es
s
of
th
e
m
et
ho
d
us
ed
(c
os
t
or
eq
ui
ty
)
an
s
w
er
s
fo
r
N
o.
2
(a
)
to
(e
)
ab
ov
e
ar
e
ex
ac
tl
y
th
e
sa
m
e.
Pr
ob
le
m
II
*this
proc
edur
e
woul
d be
not
be
appli
cable
wher
e the
NCI
on
good
will
impa
irme
nt
loss
woul
d not
be
prop
ortio
nate
to
NCI
acqui
red.
e.
P
21
,1
75
–
re
fe
r
to
(d
)
fo
r
co
m
pu
tat
io
ns
b.
P
5,
77
5
d.
P
23
3.
52
5
*this
proc
edur
e
woul
d be
not
be
appli
cable
wher
e the
NCI
on
good
will
impa
irme
nt
loss
woul
d not
be
prop
ortio
nate
to
NCI
acqui
red.
e.
P
21
,1
75
–
re
fe
r
to
(d
)
fo
r
co
m
pu
tat
io
ns
N
ot
e:
R
eg
ar
dl
es
s
of
th
e
m
et
ho
d
us
ed
(c
os
t
or
eq
ui
ty
)
an
s
w
er
s
fo
r
N
o.
2
(a
)
to
(e
)
ab
ov
e
ar
e
ex
ac
tl
y
th
e
sa
m
e.
Pr
ob
le
m
II
*this
proc
edur
e
woul
d be
not
be
appli
cable
wher
e the
NCI
on
good
will
impa
irme
nt
loss
woul
d not
be
prop
ortio
nate
to
NCI
acqui
red.
e.
P
21
,1
75
–
re
fe
r
to
(d
)
fo
r
co
m
pu
tat
io
ns
b.
P
5,
77
5
d.
P
23
3.
52
5
*this
proc
edur
e
woul
d be
not
be
appli
cable
wher
e the
NCI
on
good
will
impa
irme
nt
loss
woul
d not
be
prop
ortio
nate
to
NCI
acqui
red.
e.
P
21
,1
75
–
re
fe
r
to
(d
)
fo
r
co
m
pu
tat
io
ns
N
ot
e:
R
eg
ar
dl
es
s
of
th
e
m
et
ho
d
us
ed
(c
os
t
or
eq
ui
ty
)
an
s
w
er
s
fo
r
N
o.
2
(a
)
to
(e
)
ab
ov
e
ar
e
ex
ac
tl
y
th
e
sa
m
e.
Pr
ob
le
m
II
*this
proc
edur
e
woul
d be
not
be
appli
cable
wher
e the
NCI
on
good
will
impa
irme
nt
loss
woul
d not
be
prop
ortio
nate
to
NCI
acqui
red.
e.
P
21
,1
75
–
re
fe
r
to
(d
)
fo
r
co
m
pu
tat
io
ns
b.
P
5,
77
5
d.
P
23
3.
52
5
*this
proc
edur
e
woul
d be
not
be
appli
cable
wher
e the
NCI
on
good
will
impa
irme
nt
loss
woul
d not
be
prop
ortio
nate
to
NCI
acqui
red.
e.
P
21
,1
75
–
re
fe
r
to
(d
)
fo
r
co
m
pu
tat
io
ns
N
ot
e:
R
eg
ar
dl
es
s
of
th
e
m
et
ho
d
us
ed
(c
os
t
or
eq
ui
ty
)
an
s
w
er
s
fo
r
N
o.
2
(a
)
to
(e
)
ab
ov
e
ar
e
ex
ac
tl
y
th
e
sa
m
e.
Pr
ob
le
m
II
*this
proc
edur
e
woul
d be
not
be
appli
cable
wher
e the
NCI
on
good
will
impa
irme
nt
loss
woul
d not
be
prop
ortio
nate
to
NCI
acqui
red.
e.
P
21
,1
75
–
re
fe
r
to
(d
)
fo
r
co
m
pu
tat
io
ns
b.
P
5,
77
5
Unrealized Gain on Sale of Equipment

No entry
1/1/20x4
Selling price……………………………………… P740,000
Less: Book value:
Cost…………………………………………P 1,280,000
Less: Accumulated depreciation
P1,280,000/8 years x 4 years……. 640,000 640,000
Unrealized gain on sales………………………. P 100,000
Realized gain on sale thru depreciation
based on remaining life of equipment
[P100,000 / (8 – 4, expired years)……… P 25,000
Realized Gain on Sale – depreciation 25,000

Investment in S Company. . . . . . . . . . . . . . . . . . . . . . . . . .
........
Investment income (P25,000 x 100%). . . . . . . . . . . . . 25,000
........
2. Working Paper Elimination Entries:

Cost Model
None, since there is no amount available
Unrealized Gain on Sale of Equipment

No entry
1/1/20x4
Selling price……………………………………… P740,000
Less: Book value:
Cost…………………………………………P 1,280,000
Less: Accumulated depreciation
P1,280,000/8 years x 4 years……. 640,000 640,000
Unrealized gain on sales………………………. P 100,000
Realized gain on sale thru depreciation
based on remaining life of equipment
[P100,000 / (8 – 4, expired years)……… P 25,000
Realized Gain on Sale – depreciation 25,000

Investment in S Company. . . . . . . . . . . . . . . . . . . . . . . . . .
........
Investment income (P25,000 x 100%). . . . . . . . . . . . . 25,000
........
2. Working Paper Elimination Entries:

Cost Model
b. P5,775
Less: Retained earnings – Small, January 1, 20x4 (date of acquisition) 100,000
Increase in retained earnings since date of acquisition P 60,000
Less: Amortization of allocated excess – 20x4 26,000
Amortization of allocated excess – 20x5 and 20x6: P14,000 x 2 (28,000)
P 62,000
Multiplied by: Controlling interests %................... _____75%
P 46,500
Less: Goodwill impairment loss on full-goodwill) – 20x6 (P19,300 x 75%) __14,475 __32,025
Consolidated Retained earnings, December 31, 20x6 P 662,025
d. P233.525
Consolidated Net Income for 20x6
Net income from own/separate operations
Parent Company: Large Company [P200,000 – (P40,000 P170,000
x 75%)]
Small Company 90,000
Total P260,000
Less: Non-controlling Interest in Net Income* P 21,175
Amortization of allocated excess (14,000)
Goodwill impairment _19,300 __26,475
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P233,525
Add: Non-controlling Interest in Net Income (NCINI) __21,175
Consolidated Net Income for 20x6 P254,700
*Net income of subsidiary – 20x6 P 90,000
Amortization of allocated excess – 20x6 ( 14,000)
P 104,000
Multiplied by: Non-controlling interest %.......... 25%
P 26,000
Less: Non-controlling interest on impairment loss on full-goodwill ___4,825
( (P19,300 x 25%)*
Non-controlling Interest in Net Income (NCINI) P 21,175
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not be proportionate to
NCI acquired.
e. P21,175 – refer to (d) for computations
Note: Regardless of the method used (cost or equity) answers for No. 2 (a) to (e) above are exactly the same.
Problem II
A. Non-controlling Interest in Net Income (NCINI) P 21,175
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not be proportionate to
NCI acquired.
e. P21,175 – refer to (d) for computations
1.
a. P87,725
Pill Company P55,000
Sill Company 40,000
Total P95,000
Amortization of allocated excess 0
Goodwill impairment 1,500 __7,275
b. P5,775
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Small, December 31, 20x6
(P100,000 + P80,00 – P25,000 – P35,000 – P10,000 + P90,000 – P40,000) P 160,000
P 62,000
P 46,500
d. P233.525
x 75%)]
Total P260,000
P 104,000
P 26,000
( (P19,300 x 25%)*
1.
a. P87,725
Pill Company P55,000
Sill Company 40,000
Total P95,000
Amortization of allocated excess 0
Goodwill impairment 1,500 __7,275
b. P5,775
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Small, December 31, 20x6
(P100,000 + P80,00 – P25,000 – P35,000 – P10,000 + P90,000 – P40,000) P 160,000
P 62,000
P 46,500
d. P233.525
x 75%)]
Total P260,000
P 104,000
P 26,000
( (P19,300 x 25%)*
December 31, 20x4 (Balance sheet date):

Accounts receivable……….. 42,000
Foreign currency transaction gain [$60,000 x (P40.70 – P40.00)] 42,000
Accounts receivable valued at 12/31 Balance Sheet

($60,000 x P40.70)……… P2,442,000
Accounts receivable valued at 12/1 Date of Transaction
($60,000 x P40.00)……… 2,400,000
Adjustment to accounts receivable needed……….. P 42,000
March 1, 20x5 (Settlement date):

Cash ($60,000 x P40,60)……………….. 2,436,000
Foreign currency transaction loss……… 6,000
Accounts receivable ($60,000 x P40.70)………. 2,442,000
2.
a.
a.1. None – transaction date
a.2. P42,000 gain
a.3. P6,000 loss (March 1, 20x5)
b.
b.1. P2,442,000 – spot rate on the balance sheet date or current rate on the balance sheet
b.2. P973,200 – spot rate on the transaction date or historical rate on the balance sheet date.
Problem VI
The entries to record these transactions and the effects of changes in exchange rates are as follows:
November 1, 20x4 (Transaction date):

Equity investment (FVTPL)/Financial Asset …………… 3,840,000
Cash 3,840,000
To record the purchase of shares in Pineapple Computers at a cost of $96,000 at the
exchange rate of P40.
December 10, 20x4 (Transaction date):

Equipment ………………………… 636,000
Cash 636,000
- 8,400 = FC1 1,200,000 x P.0070 May 1 spot rate
P 600 = FC1 1,200,000 x (P.0075 - P.0070)
Accounts Payable (FC1) 9,000

Foreign Currency Units (FC1) 9,000
Settle payable denominated in FC1.
July 1 Accounts Receivable (FC2) 10,000

Sales 10,000
Foreign sale denominated in foreign currency 2
(FC 2)
FC3: P10,000 / P.20 = FC2 50,000
August 10 Accounts Receivable (FC2) 1,000

Foreign Currency Transaction Gain 1,000
-105,000 = July 1, 20x5, Peso equivalent value
(LCU 840,000 / 8) = P105,000
P(35,000) Foreign currency transaction loss
9. d P27,000 = P6,000 + P20,000 + P1,000
Accounts Payable (FCU)

1/20/x4 90,000
AJE 6,000
3/20/x4 96,000
Foreign Exchange Loss 6,000

Accounts Payable (FCU) 6,000
Notes Payable (FCU)

7/01/x4 500,000
AJE 20,000
12/31/x4 520,000
Notes Payable (FCU) 20,000
Interest Payable (FCU)
(FCU500,000 x .10 x 1/2 year) 25,000
AJE 1,000
12/3/x4 26,000
Interest expense 25,000
Interest Payable (FCU) 25,000

10. c P5,000
Accounts Receivable (FCU)
10/15/x4 100,000
AJE 5,000
11/16/x4 105,000 Settlement 11/16/x4 105,000
Accounts Receivable (FCU) 5,000

Foreign Exchange Gain 5,000
Note: The receivable is recorded on October 15, 20x4, when the goods were shipped, not on
September 1, 20x4, when the order was received.
11. b P1,000
(10,000 x P.60) 4/08/x4 6,000
x4 AJE 500
(10,000 x P.55) 12/31/x4 5,500
X5 AJE 1,000
(10,000 x P.45) 3/01/x5 4,500
Settlement 4,500
Bal. -0-
X5 AJE Accounts Payable (FCU) 1,000
12. b P9,000 = 300,000 FCUs x (P1.65 - P1.62). The foreign currency transaction gain is computed
using spot rates on the transaction date (November 30, 20x4) and the balance sheet date
(December 31, 20x4). The forward exchange rates are not used because the transaction was not
hedged.
13. c –
Date of transaction (7/7) P 2.08
Balance sheet date (8/31) 2.05
Foreign exchange currency gain per FCU P .03
Multiplied by: No. of FCU 350,000
Foreign exchange currency gain P 10,500
14. b – The value of the asset acquired should be the spot rate on the date of transaction, i.e. P-80. Therefore, the
final recorded value of the electric generator should be P40,000 (P.80 x 50,000 FCs)
15. a
Date of transaction P .75
Date of settlement .80
16. d
Date of transaction (12/15) P .60
Balance sheet date (12/31) .65
17. b
Date of transaction (11/30) P 1 .65
18. b
19. a
Date of arrival (P1,000 / 480,000 FC) P .00208
Date of departure (P100/50,000 FC) .00200
Foreign exchange currency loss per FCU P .00008
Foreign exchange currency loss P 4
20. b
Foreign exchange currency gain per LCU P .10
Multiplied by: No. of LCU 5,000
Foreign exchange currency gain P 500
21. d
Date of transaction (11/2) P 1. 08
22. a
Date of transaction (9/3) : P17,000 / P.85 = 20,000 FC P . 85
Date of settlement (10/10) .90
Foreign exchange currency loss per FC P .05
Multiplied by: No. of FC 20,000
Foreign exchange currency loss P 1,000
23. a
Foreign exchange currency gain per FC P .003
24. d
Balance sheet date (12/31) P .262
25. c
Foreign exchange currency gain (No. 25) P 300
Foreign exchange currency loss (No. 26) _ 200
Overall gain , net P 100
or,
26. b – any gain or loss on foreign currency should be considered ordinary.

27. d
Date of transaction (4/8) : P1 / .65 FC (direct quote) P 1.54
Date of settlement (5/8): P1/ .70 FC (direct quote) 1.43
28. d – the amount of sales should be the spot rate on the date of transaction (or the balance sheet date - historical
rate). I.e., P1.7241 x 10,000 FCs = P17,241.
29. e
1/1: Date of transaction – spot rate P 1.7241
12/31: Balance sheet date 1.8182
30. b
Balance sheet date (12/31/20x4) P 1.8182
Date of settlement (1/30/20x5) 1.6666
31. a – since accounts payable is an exposed account meaning their value will fluctuate based on the spot exchange
rates, the value of the accounts payable should be the value on May 8, i.e., the spot rate of P1.25 (P.15 x
2,000,000 FCs = P2,500,000).
32. c
Foreign exchange currency loss per FC P 0.01
Multiplied by: No. of FC 2,000,000
33. e – in a two-transaction approach, the recognition of foreign exchange gain or loss is separate from the
settlement, therefore, the amount of accounts payable to be settled should be the spot rate on the settlement date,
i.e., P1.20 (P1.20 x 2,000,000 FCs = P2,400,000)
34. a
Balance sheet date (12/31/20x4) P8,000
Date of settlement (3/2/20x5) 6,900
35. d
4/8/20x3: Date of transaction P 97,000
12/31/20x3: Balance sheet date 103,000
36. d
37. d
11/4/x6: Date of transaction – spot rate P .70
12//31/x6: Balance sheet date .67
38. d
39. b
Income statement:
Foreign exchange currency gain per FC P 0.003
Balance sheet: Inventory should be spot rate on the transaction date:
P.798 x 1,000,000 = P798,000.
40. a
Income statement:
Sales should be spot rate on the transaction date:

P.181 x 1,000,000 = P181,000
41. b - 70,000 x P.65

42. b - 70,000 x P.65
43. a - 70,000 x P.72
44. c - 70,000 x (P.72 - P.65)
45. b - 70,000 x (P.69 - P.72)
46. d - 25,000 x P1.14
47. b - 25,000 x P1.06
48. a - 25,000 (P1.14 - P1.06)
49. d - 25,000 (P1.06 - P1.09)
50. d – spot rate on the date of settlement
51. b – spot rate on the date of purchase/transaction
52. b - spot rate on the date of transaction
53. a – refer to page 646 of the book for the discussion of “one-transaction theory”
54. c – (P.82 – P.82) x 1,000 FCUs
55. a - P5 exchange gain = (P.81 – P.8050) x 1,000 FCUs
56. b – spot rate on the date of transaction(loan date) – 5,000,000 x P1.150
57. d – spot rate on the balance sheet date – (5,000,000 x 5%) x P1.1490
58. a – (P1.15 – P1.149) x 5,000,000 = P5,000 gain
59. d – spot rate on the date of transaction(loan date) – (5,000,000 x 5%) x P1.1485
60. d
P78,000/P.80 per FCU = P 97,500
P78,000/P.78 per FCU = _100,000
Difference in FCU = P (2,500)
Difference in pesos (2,500) x .78 = P (1,950)
61. b - P97,500 francs (from 60 above) x P.78 = P76,050

62. d
Indirect exchange rate:
for the Singapore dollars: 1/07025 = 1.4235
for the HK dollars: 1/2.5132 = .3979
63. a - HK$10,000 x P2.5132/HK$ = P25,132

64. b - P10,000/P.7025 = 14,235 Singapore dollars
65. b – FC 1,000,000 x (P0.77 - P0.80) = P30,000 loss
66. d – FC 5,000 x P0.77 = P3,850

Accounts receivable……….. 42,000
Accounts receivable valued at 12/31 Balance Sheet

($60,000 x P40.70)……… P2,442,000
Accounts receivable valued at 12/1 Date of Transaction
($60,000 x P40.00)……… 2,400,000
Adjustment to accounts receivable needed……….. P 42,000

Cash ($60,000 x P40,60)……………….. 2,436,000
Foreign currency transaction loss……… 6,000
Accounts receivable ($60,000 x P40.70)………. 2,442,000
2.
a.
a.1. None – transaction date
a.2. P42,000 gain
a.3. P6,000 loss (March 1, 20x5)
b.
b.1. P2,442,000 – spot rate on the balance sheet date or current rate on the balance sheet
Problem VI
The entries to record these transactions and the effects of changes in exchange rates are as follows:
November 1, 20x4 (Transaction date):

Cash 3,840,000
To record the purchase of shares in Pineapple Computers at a cost of $96,000 at the
exchange rate of P40.
Equipment ………………………… 636,000
Cash 636,000
To record the purchase of equipment costing 12,000 euros at the exchange rate of P53.

Unrealized gain in fair value of equity investment (financial asset) 1,020,000
To record gain in fair value of Pineapple Computer’s share.
12/31/x4: Revalued Investment and translated at the rate on the date of

revaluation (closing/current rate):
(1,200 units x $100 x P40.50)……………. P4,860,000
11/1/x4: Investment, cost (1,200 units x $80 x P40.00) 3,840,000
Unrealized gain on equity investment P1,020,000
Less: Foreign currency transaction gain – equity investment
11/1/20x4: Date of transaction (1,200 units x $80 x P40).. P3,840,000
Less: 12/31/20x4: B/S Date (1,200 units x $80 x P40.50)…. 3,888,000 48,000
Other unrealized gain in the fair value of equity investment... P 972,000
Foreign currency transaction loss….………………….. 19,200

Accounts payable [$96,000 x (P53.20 – P53)]……… 19,200
To record exchange loss on accounts payable in euros.
Accounts payable valued at 12/31 Balance Sheet

(1,200 x $80 x P53.20)……… 5,107,200
Accounts payable valued at 12/1 Date of Transaction
(1,200 x $80 x P53.00)……… 5,088,000
Adjustment to accounts payable needed……….. P 19,200
February 3, 20x5 (Settlement date):

Accounts payable………………… 5,107,200
Foreign currency transaction loss [$96,000 x (P53.80 – P53.20)] 57,600
Cash ($96,000 x P53.80)……………. 5,164,800
To record exchange loss on accounts payable in euros and settlement of
accounts payable in euros at the spot rate of P53.80.
Note the following:

 The investment in Pineapple Computers, Inc shares is a non-monetary item that is carried at fair
value as it is classified as equity investment through profit or loss (or a financial asset – FVTPL
refer PFRS 9). The investment is revalued and translated at the rate on the date of revaluation, that
is, December 31, 20x4.
 The equipment is translated at the spot rate at the date of purchase and, being a non-monetary item,
is carried at cost. It is not adjusted for the change in the exchange rate at balance sheet date. The
accounts payable in euros is a monetary item and is remeasured using the current / closing rate at balance
sheet date. The exchange loss is expensed off to the income statement
Problem VII
1. May 1 Inventory (or Purchases) 8,400
Accounts Payable 8,400
Foreign purchase denominated in pesos
June 20 Accounts Payable 8,400

Cash 8,400
Settle payable.
July 1 Accounts Receivable 10,000
Sales 10,000
Foreign sale denominated in pesos
August 10 Cash 10,000

Accounts Receivable 10,000
Collect receivable.
2. May 1 Inventory (or Purchases) 8,400

Foreign purchase denominated in yen:
P8,400 / P.0070 = FC1 1,200,000
June 20 Foreign Currency Transaction Loss 600

Accounts Payable (FC1) 600
Revalue foreign currency payable to
peso equivalent value:
P9,000 = FC1 1,200,000 x P.0075 June 20 spot rate
- 8,400 = FC1 1,200,000 x P.0070 May 1 spot rate
P 600 = FC1 1,200,000 x (P.0075 - P.0070)

Settle payable denominated in FC1.
July 1 Accounts Receivable (FC2) 10,000

Sales 10,000
Foreign sale denominated in foreign currency 2
(FC 2)
FC3: P10,000 / P.20 = FC2 50,000
August 10 Accounts Receivable (FC2) 1,000

Revalue foreign currency receivable
to U.S. dollar equivalent value:
P 11,000 = FC2 50,000 x P.22 Aug. 10 spot rate
- 10,000 = FC2 50,000 x P.20 July 1 spot rate
P 1,000 = FC2 50,000 x (P.22 - P.20)

Accounts Receivable (FC2 11,000
Receive FC 2 in settlement of receivable
Problem VIII
1. Denominated in FC
RR Imports reports in Philippine pesos:
12/1/x4 12/31/x4 1/15/x5
Transaction Balance Sheet Settlement

Date Date Date
Direct P.70 P.66 P.68
Exchange
Rate
2. December 1, 20x4
Inventory (or Purchases) 10,500
Accounts Payable (FC) 10,500
P10,500 = FC 15,000 x P.70
December 31, 20x4

Accounts Payable (FC) 600
Foreign Currency Transaction Gain 600
Revalue foreign currency payable to
equivalent peso value:
P 9,900 = FC 15,000 x P.66 Dec. 31 spot rate
-10,500 = FC 15,000 x P.70 Dec. 1 spot rate
P 600 = FC 15,000 x (P.66 - P.70)
January 15, 20x5

Foreign Currency Transaction Loss 300
Accounts Payable (FC) 300
Revalue payable to current peso equivalent
P10,200 = FC 15,000 x P.68 Jan. 15, 20x5, value
- 9,900 = FC 15,000 x P.66 Dec. 31, 20x4, value
P 300 = FC 15,000 x (P.68 - P.66)
Accounts Payable (FC) 10,200

Foreign Currency Units (FC) 10,200
P10,200 = FC 15,000 x P.68
Accounts Payable (FC)

(FC 15,000 x P.70) 12/1/x4 10,500
AJE 12/31/x4 600
(FC 15,000 x P.66) Bal 12/31/x4 9,900
AJE 1/15/x5 300
(FC 15,000 x P.68) Bal 1/15/ x5 10,200
1/15/x5 Settlement 10,200
Bal 1/16/x5 -0-
Problem IX
1. December 31, 20x6
Accounts Receivable (FC1) 10,000
Adjust receivable denominated in FC1
to current peso equivalent
and recognize exchange gain:
P83,600 = FC475,000 x P.176 Dec. 31 spot rate
- 73,600 = Preadjusted Dec. 31, 20x6, value
P10,000

Adjust payable denominated in foreign
currency to current peso equivalent
and recognize exchange gain:
P175,300 = Preadjusted Dec. 31, 20x6, value
- 170,100 = FC2 21,000,000 x P.0081, Dec. 31 spot rate
P 5,200
2. Accounts Receivable (FC1) 1,900

Adjust receivable denominated in FC1
to equivalent peso value on
settlement date:
P85,500 = FC1 475,000 x P.180 20x7 collection date value
- 83,600 = FC1 475,000 x P.176 Dec. 31, 20x6, spot rate
P 1,900 = FC1 475,000 x (P.180 - P.176)
Cash 164,000
Accounts Receivable (FC1) 85,500
Accounts Receivable (P) 164,000
Collect all accounts receivable.
3. Accounts Payable (FC2) 6,300

Adjust payable to equivalent peso
value on settlement date:
P163,800 = FC2 21,000,000 x P.0078 20x7 payment date value
- 170,100 = FC2 21,000,000 x P.0081 Dec. 31, 20x6, spot rate
P 6,300 = FC2 21,000,000 x (P.0078 - P.0081)
Accounts Payable (P) 86,000

Cash 86,000
Payment of all accounts payable.
4. Transaction gain on FC:

December 31, 20x6 P10,000 gain
December 31, 20x7 1,900 gain
Overall P11,900 gain
5. Transaction gain on FC2:

December 31, 20x6 P 5,200 gain
December 31, 20x7 6,300 gain
Overall P11,500 gain
6. Overall foreign currency transactions gain:

Gain on FC1 transaction P11,900
Gain on FC2 transaction 11,500
P23,400
CDL could have hedged its exposed position. The exposed positions are only those denominated in
foreign currency units. The accounts receivable denominated in FC1 could be hedged by selling FC1
in the forward market, thereby locking in the value of the FC1. The accounts payable denominated in
FC2 could be hedged by buying FC2 in the forward market, thereby locking in the value of the FC2.
Problem X
Foreign Currency Foreign Currency
Accounts Transaction Exchange Transaction
Receivable Accounts Payable Loss Exchange Gain
Case 1 NA P16,000(a) NA P2,000(b)
Case 2 P38,000(c) NA NA P2,000(d)
Case 3 NA P27,000(e) P3,000(f) NA
Case 4 P6,250(g) NA P1,250(h) NA
(a) LCU 40,000 x P.40

(b) LCU 40,000 x (P.40 - P.45)
(c) LCU 20,000 x P1.90
(d) LCU 20,000 x (P1.90 - P1.80)
(e) LCU 30,000 x P.90
(f) LCU 30,000 x (P.90 - P.80)
(g) LCU 2,500,000 x P.0025
(h) LCU 2,500,000 x (P.0025 - P.003)
Multiple Choice Problems
1. c C$1 / P.90 (C$1.11 = P1.00)
2. d – (correction: the question should be April 20, 20x5 not 20x4)

20x4 20x5
P.4895 x FC30,000 P14,685 P.4845 x FC30,000 P14,535
P.4845 x FC30,000 14,535 P.4945 x FC30,000 14,835
Gain P 150 Loss P (300)
3. b
20x4
Date of transaction (12/1/20x4) P .0095
Balance sheet date (12/31/20x4) .0096
20x5
Balance sheet date (12/31/20x4) P .0096
Date of settlement (1/10/20x5) .0094
4. c
5. b January 15
Foreign Currency Units (LCU) 300,000
Exchange Loss 15,000
Accounts Receivable (LCU) 315,000
Collect foreign currency receivable and
recognize foreign currency transaction
loss for changes in exchange rates:
P300,000 = (LCU 900,000 / LCU 3) Jan. 15 value
- 315,000 = Dec. 31 Peso equivalent
P 15,000 Foreign currency transaction loss
6. c – spot rate on the date of transaction

7. a - spot rate on the date of transaction
8. d P120,000 = July 1, 20x4, Peso equivalent value
P140,000 = December 31, 20x4, Peso equivalent value
(LCU 840,000 / P140,000) = LCU 6 / P1
-105,000 = July 1, 20x5, Peso equivalent value
(LCU 840,000 / 8) = P105,000
P(35,000) Foreign currency transaction loss
9. d P27,000 = P6,000 + P20,000 + P1,000

1/20/x4 90,000
AJE 6,000
3/20/x4 96,000

Accounts Payable (FCU) 6,000
Notes Payable (FCU)

7/01/x4 500,000
AJE 20,000
12/31/x4 520,000
Notes Payable (FCU) 20,000
Interest Payable (FCU)

(FCU500,000 x .10 x 1/2 year) 25,000
AJE 1,000
12/3/x4 26,000
Interest expense 25,000

10. c P5,000
Accounts Receivable (FCU)
10/15/x4 100,000
AJE 5,000
11/16/x4 105,000 Settlement 11/16/x4 105,000
Accounts Receivable (FCU) 5,000

Note: The receivable is recorded on October 15, 20x4, when the goods were shipped, not on
September 1, 20x4, when the order was received.
11. b P1,000
(10,000 x P.60) 4/08/x4 6,000
x4 AJE 500
(10,000 x P.55) 12/31/x4 5,500
X5 AJE 1,000
(10,000 x P.45) 3/01/x5 4,500
Settlement 4,500
Bal. -0-
X5 AJE Accounts Payable (FCU) 1,000
12. b P9,000 = 300,000 FCUs x (P1.65 - P1.62). The foreign currency transaction gain is computed
using spot rates on the transaction date (November 30, 20x4) and the balance sheet date
(December 31, 20x4). The forward exchange rates are not used because the transaction was not
hedged.
13. c –
14. b – The value of the asset acquired should be the spot rate on the date of transaction, i.e. P-80. Therefore, the
final recorded value of the electric generator should be P40,000 (P.80 x 50,000 FCs)
15. a
Date of transaction P .75
Date of settlement .80
16. d
17. b
Date of transaction (11/30) P 1 .65
18. b
Date of transaction (11/30) P1.49
19. a
Date of arrival (P1,000 / 480,000 FC) P .00208
Date of departure (P100/50,000 FC) .00200
Foreign exchange currency loss per FCU P .00008
20. b
21. d
Date of transaction (11/2) P 1. 08
22. a
Date of transaction (9/3) : P17,000 / P.85 = 20,000 FC P . 85
23. a
24. d
Balance sheet date (12/31) P .262
25. c
Foreign exchange currency gain (No. 25) P 300
Foreign exchange currency loss (No. 26) _ 200
Overall gain , net P 100
or,
26. b – any gain or loss on foreign currency should be considered ordinary.

27. d
Date of transaction (4/8) : P1 / .65 FC (direct quote) P 1.54
Date of settlement (5/8): P1/ .70 FC (direct quote) 1.43
28. d – the amount of sales should be the spot rate on the date of transaction (or the balance sheet date - historical
rate). I.e., P1.7241 x 10,000 FCs = P17,241.
29. e
30. b
Balance sheet date (12/31/20x4) P 1.8182
Date of settlement (1/30/20x5) 1.6666
31. a – since accounts payable is an exposed account meaning their value will fluctuate based on the spot exchange
rates, the value of the accounts payable should be the value on May 8, i.e., the spot rate of P1.25 (P.15 x
2,000,000 FCs = P2,500,000).
32. c
33. e – in a two-transaction approach, the recognition of foreign exchange gain or loss is separate from the
settlement, therefore, the amount of accounts payable to be settled should be the spot rate on the settlement date,
i.e., P1.20 (P1.20 x 2,000,000 FCs = P2,400,000)
34. a
35. d
4/8/20x3: Date of transaction P 97,000
12/31/20x3: Balance sheet date 103,000
36. d
37. d
38. d
39. b
Income statement:
Foreign exchange currency gain per FC P 0.003
Balance sheet: Inventory should be spot rate on the transaction date:
P.798 x 1,000,000 = P798,000.
40. a
Income statement:
Sales should be spot rate on the transaction date:

P.181 x 1,000,000 = P181,000
41. b - 70,000 x P.65

42. b - 70,000 x P.65
43. a - 70,000 x P.72
44. c - 70,000 x (P.72 - P.65)
45. b - 70,000 x (P.69 - P.72)
46. d - 25,000 x P1.14
47. b - 25,000 x P1.06
48. a - 25,000 (P1.14 - P1.06)
49. d - 25,000 (P1.06 - P1.09)
50. d – spot rate on the date of settlement
51. b – spot rate on the date of purchase/transaction
52. b - spot rate on the date of transaction
53. a – refer to page 646 of the book for the discussion of “one-transaction theory”
54. c – (P.82 – P.82) x 1,000 FCUs
55. a - P5 exchange gain = (P.81 – P.8050) x 1,000 FCUs
56. b – spot rate on the date of transaction(loan date) – 5,000,000 x P1.150
57. d – spot rate on the balance sheet date – (5,000,000 x 5%) x P1.1490
58. a – (P1.15 – P1.149) x 5,000,000 = P5,000 gain
59. d – spot rate on the date of transaction(loan date) – (5,000,000 x 5%) x P1.1485
60. d
P78,000/P.80 per FCU = P 97,500
P78,000/P.78 per FCU = _100,000
Difference in FCU = P (2,500)
Difference in pesos (2,500) x .78 = P (1,950)
61. b - P97,500 francs (from 60 above) x P.78 = P76,050

62. d
Indirect exchange rate:
for the Singapore dollars: 1/07025 = 1.4235
for the HK dollars: 1/2.5132 = .3979
63. a - HK$10,000 x P2.5132/HK$ = P25,132

64. b - P10,000/P.7025 = 14,235 Singapore dollars
65. b – FC 1,000,000 x (P0.77 - P0.80) = P30,000 loss
66. d – FC 5,000 x P0.77 = P3,850
Chapter 19
Problem I
1. Indirect Exchange Rates
Philippine Viewpoint:
1 $ = P40; 1 Peso = $0.025 ($1/P40)
1 Singapore dollar = P32.00; 1 Peso = 0.03125 Singapore (1 Singapore Dollar/P32)
Peso P8,000
2. FCU = = = $200; or
Direct Exchange Rate P40.00
= P8,000 x $1/P40 = $200
3. 4,000 Singapore dollars x P32 = P128,000
Problem II
a. Exchange rates:
Arrival Date Departure Date
1 Singapore dollar = P33.00 1 Singapore Dollar = P32.50

Direct
Exchange Rate (P33,000 / 1,000 Singapore dollars) (P3,250 / 100 Singapore dollars)
P1.00 = .03 Singapore dollars P1.00 = .03 Singapore dollars

Indirect
Exchange Rate (1,000 Singapore dollars / (100 Singapore dollars / P3,250))
P33,000)
2. The direct exchange rate has decreased. This means that the peso has strengthened during Mr. Alt's
visit. For example, upon arrival, Mr. Alt had to pay P33 per each dollar. Upon departure, however,
each dollar is worth just P32.50. This means that the relative value of the peso has increased or,
alternatively, the value of the dollar has decreased.
3. The Philippine peso equivalent values for the 100 Singapore dollars are:
Arrival date
100 dollars x P33.00 = P3,300
Departure date
100 dollars x P32.50 = 3,250
Foreign Currency Transaction Loss P 50
Mr. Alt held dollars for a time in which the dollars was weakening against the peso. Thus, Mr. Alt
experienced a loss by holding the weaker currency.
Problem III
1. If the direct exchange rate increases, the peso weakens relative to the foreign currency unit. If the
indirect exchange rate increases, the peso strengthens relative to the foreign currency unit.
2.
Settlement Direct Exchange Rate Indirect Exchange Rate

Transaction Currency Increases Decreases Increases Decreases
Importing Peso NA NA NA NA
Importing L G G L
LCU
Exporting Peso NA NA NA NA
Exporting LCU G L L G
Problem IV
1.
Purchases…………………….. 973,200
Accounts payable ($24,000 x P40.55)……………………………… 973,200

Foreign currency transaction loss….………………….. 6,000
Accounts payable [$24,000 x (P40.80 – P40.55)]……… 6,000
Accounts payable valued at 12/31 Balance Sheet

($24,000 x P40.80)……… P979,200
Accounts payable valued at 12/1 Date of Transaction
($24,000 x P40.55)……… 973,200
Adjustment to accounts payable needed……….. P 6,000

Accounts payable………………… 979,200
Cash ($24,000 x P40.65)……………. 975,600
2.
a.
a.1. None – transaction date (December 1, 20x4)
a.2. P6,000 loss
a.3. P3,600 gain (March 1, 20x5)
b.
b.1. P979,200 – spot rate on the balance sheet date or current rate on the balance sheet
Problem V
1. December 1, 20x4 (Transaction date):
Accounts receivable ($60,000 x P40.00)……………………………… 2,400,000
Sales 2,400,000

This Proc Edur e Woul D Be Not Be Appli Cable Wher e The

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

This Proc Edur e Woul D Be Not Be Appli Cable Wher e The

Uploaded by

Copyright:

Available Formats

d.

Unrealized Gain on Sale of Equipment

Realized Gain on Sale – depreciation 25,000

2. Working Paper Elimination Entries:

Unrealized Gain on Sale of Equipment

Realized Gain on Sale – depreciation 25,000

2. Working Paper Elimination Entries:

e. P21,175 – refer to (d) for computations

e. P21,175 – refer to (d) for computations

December 31, 20x4 (Balance sheet date):

Accounts receivable valued at 12/31 Balance Sheet

March 1, 20x5 (Settlement date):

November 1, 20x4 (Transaction date):

December 10, 20x4 (Transaction date):

Accounts Payable (FC1) 9,000

July 1 Accounts Receivable (FC2) 10,000

August 10 Accounts Receivable (FC2) 1,000

Accounts Payable (FCU)

Foreign Exchange Loss 6,000

Notes Payable (FCU)

Foreign Exchange Loss 1,000

11/16/x4 105,000 Settlement 11/16/x4 105,000

Accounts Receivable (FCU) 5,000

26. b – any gain or loss on foreign currency should be considered ordinary.

Sales should be spot rate on the transaction date:

41. b - 70,000 x P.65

Difference in pesos (2,500) x .78 = P (1,950)

61. b - P97,500 francs (from 60 above) x P.78 = P76,050

63. a - HK$10,000 x P2.5132/HK$ = P25,132

December 31, 20x4 (Balance sheet date):

Accounts receivable valued at 12/31 Balance Sheet

March 1, 20x5 (Settlement date):

November 1, 20x4 (Transaction date):

December 31, 20x4 (Balance sheet date):

12/31/x4: Revalued Investment and translated at the rate on the date of

Foreign currency transaction loss….………………….. 19,200

Accounts payable valued at 12/31 Balance Sheet

February 3, 20x5 (Settlement date):

Note the following:

June 20 Accounts Payable 8,400

August 10 Cash 10,000

2. May 1 Inventory (or Purchases) 8,400

June 20 Foreign Currency Transaction Loss 600

Accounts Payable (FC1) 9,000

July 1 Accounts Receivable (FC2) 10,000

August 10 Accounts Receivable (FC2) 1,000

Foreign Currency Units (FC2) 11,000

12/1/x4 12/31/x4 1/15/x5

Transaction Balance Sheet Settlement

December 31, 20x4

January 15, 20x5

Accounts Payable (FC) 10,200

Accounts Payable (FC)

Accounts Payable (FC2) 5,200

2. Accounts Receivable (FC1) 1,900

3. Accounts Payable (FC2) 6,300

Accounts Payable (P) 86,000

4. Transaction gain on FC:

5. Transaction gain on FC2:

6. Overall foreign currency transactions gain:

Case 1 NA P16,000(a) NA P2,000(b)

Case 2 P38,000(c) NA NA P2,000(d)

Case 3 NA P27,000(e) P3,000(f) NA