CPA REVIEW SCHOOL OF THE PHILIPPINES Advanced Financial Accounting Guerrero/German/DeJesus/Lim/Ferrer/Laco/Valix Part I: Theory of Accounts 1. Under PAS 21, which of the following statements pertains to functional currency? a. Itrefers to the currency of the primary economic environment in which the entity operates. b_Itrefers to the currency in which the financial statements are presented. €. Itrefers to the currency other than the functional currency of the entity. ._Itrefers to the type of currency in a given jurisdiction which a creditor may be compelled to accept. 2. Under PAS 21, monetary items are cash or elements of financial statements which are receivable or payable in a fixed amount of cash. Which of the following is a monetary item? a. Sales b. Income tax payable” ¢. Uneamed revenue d. Inventory 3. Which of the following is a nonmonetary item? a. Prepaid asset _ b. Loan receivable ©. Accounts payable d._ Interest payable 4. Under PAS 21, what is the initial measurement of foreign currency denominated transaction? a aera b. Monetary items are measured at closing rate while nonmonetary items are measured at transaction rate. c. Monetary items are measured at transaction rate while nonmonetary items are measured at closing rate. d. Both monetary and nonmonetary items are measurement initially at closing rate, 5. Under PAS 21, what is the subsequent measurement of nonmonetary items? Closing rate Transaction rate Average rate Monthly rate aece 6. Under PAS 21, what is the subsequent measurement of monetary items? a. Closing rate ~ b. Transaction rate c. Average rate d. Monthly rate 7. Under PAS 21, what is the subsequent measurement of nonmonetary items subsequently measured at fair value? a. Closing rate b. Transaction rate c. d. Average rate 8719Page 2 8. PAS 21 provides that exchange differences/(gain/loss) arising on the settlement or : translating foreign currency transaction shall be recognized in a. Profit or loss b. Other comprehensive income c. Share premium d. Retained earnings 9. Which of the following items will result to foreign currency transaction gain/loss due to settlement or translation? a. Foreign currency denominated income statement accounts such as revenue, income, expense or loss b. Foreign currency denominated non-monetary assets such as inventory, PPE, intangible d. Foreign currency denominated non-monetary liabilities such as unearned revenue, warranty liability, premium liability and deferred tax liability. e. Foreign currency denominated equity accounts such as ordinary shares, preference shares, treasury shares and share premium. 10. Under PAS 21, when there is a change in the entity’s functional currency, how shall the entity apply the translation procedures applicable to the new functional currency? a. Itshall be applied prospectively from the date of change. b. Itshall be applied retrospectively from the date of change. c. Itshall be applied retroactively from the reasonably possible date 4. Itshall be applied retrospectively as a prior period error. 11. IAS 21 provides that an entity may present its financial statements in any currency even different from its functional currency. When the company translates its financial statements from its functional currency to its selected presentation currency, how shall the exchange differences arising from the translation be recognized? a. Itshall be recognized in profit or loss. b Sg ren — sficat it ifrealized. c. It shall be recognized in other comprehensive income without reclassification adjustment and reclassified directly to retained earnings if realized. d. It shall be recognized directly to retained earnings. When translating the financial statements of an entity from its functional currency to its selected presentation currency, which of the following translation measurement is incorrect? ‘a. Assets and liabilities are translated at the closing rate at the date of statement of financial position. b. Income and expenses are translated at (1) exchange rates at the date of the transaction or (2) Average rate for the period for practicality. c. Equity accounts other than retained earnings are translated at the date of the transaction resulting to that equity items. d Cae cre ings translated sing the eveige ral. daring period When an entity’s functional currency is the currency of a hyperinflationary economy, how shall the elements of the Financial Statements be translated to presentation currency’ a feriab. Ass Page 3 “ ‘sets and liabilities shall be translated at closing rate while income and expenses at erage rate while equity at transaction rate All amounts are translated at average rate. All amounts are translated at historical rate, ©. 4 14 Which of the following statements concerning exchange differences arising from entity's net investment in foreign operation is correct? a. 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 statement of the reporting entity or the individual financial statements of the foreign operation, as appropriate b. In the consolidated financial statements of the reporting entity which includes that of a foreign operation which is a subsidiary, the exchange differences shall be recognized initially in other comprehensive income. © On the disposal of foreign operation, the cumulative amount of the exchange differences relating to foreign operation, recognized in other comprehensive income and accumulated in separate component of equity shall be reclassified from equity/cumulative OCI to profit or loss as reclassification adjustment when the gain or loss on disposal is recognized 4. Alllof the above. Part It: Problem Solving 1. Entity A owns majority of the outstanding ordinary shares of Entity B which is operating in United States of America wherein the functional currency is the USA $. However, the Presentation currency of Entity B is the Philippine Peso because that is the presentation currency of Entity A. For the year ended December 31, 2020, Entity B presented its Statement of Financial Position in its functional currency of USA $: Current assets $10,000 Current liabilities $10,000 Noncurrent assets 40,000 Noncurrent liabilities 20,000 Ordinary share capital 5.000 Preference share capital 8,000 Retained earnings 7,000 Total Assets $50,000 Total Liabilities and shareholders $50,000 + The ordinary shares are issued on January 1, 2019 while the preference shares are issued on July 1, 2019. ‘+B reported $1,000 net income during 2020 and declared dividends in the amount of $200 on December 1, 2020. + The translated amount of retained earnings on December 31, 2019 is P300,000.’ ‘The following direct exchange rates are provided: January 1, 2019 P40 July 1, 2019 2 December 31,2019 43 December 1,2020 41 December 31,2020 45 Average rate 202044 1. What is the amount of net assets in US dollars on December 31, 2019? NA eg 2019 ; ae Pep. 4 Re beg F020 um ND b ny 44 44a Zu fo 2a. I & 19000 Faraecianatle do piven’ ign) d. 20,200 RE am a dl mm im * RE, 207 2) Soon 8719 ‘Net Raseft end 2019 7%.20 S30 NAC Kang role 19.20 da 4in translation adj 209 de! Cumulative fran. ad Gumulatve trans. adj. end 20/9n ck oh What amount of translation gain as component of other comprehensive income should be presented in the of statement of comprehensive income for the year ended December 31, 20207 mem Ah OMX) UHM sam Canute kandahin adpunerts b. 39,200 Lah (»0.mmv yr) 1950, tex:(J0.4m) Cumuiative framlatin aqjurmert 2077 ©. 40,400 che ~Or (sexe) 20m | 2.22100) p59; ow d. 41,800 ~ Pf (@mxq2) 2aum| 198.00 rromilahn Adjucknent cling 2021) RE Dean 3. What is the translated retained earnings balance on December 31, 2020? a. 300,000 Rtibey — G2n a.m b. 335,800 © Nr rmx % wm cc. 344,000 puiderdr (20) y (8,20) 4. 281,800 Retna Mgr on 4. What is the cumulative translation credit that should to be presented in the statement of financial position on December 31, 2020? a. 25,400 b. 28,200 | c. 26,800 d. 24,600 GWA Corporation of Makati paid P 1,128,750 for a 35% interest in KYJ Company of Taiwan on January 1, 2022, when KYJ’s net asset totaled 375,000 NT Dollar and the exchange rate for NT Dollar was P8.60. A summary of changes in KYJ’s net assets during 2022 is as follows: NT Dollar Exchange Rates Net assets, January 1 375,000 Xx Pg60 = 9220 ‘Net income for 2022 75,000 x 855 = 44,acD Reo Dividends paid for 2022 25,000 x as¢ = (2% geo, “ais 8.50 ae GWA Corporation anticipated a strengthening of the Philippine peso against the NT Dollar (40.20) during the last half of 2022, and it borrowed 150,000 NT Dollar from a Taiwanese bank for — x 3:-/ ‘one year at 10% interest on July 1, 2022 to hedge its net investment in KYJ. ate) The loan was made when the exchange rate for NT Dollar was P8.55. The loan was denominated in NT dollar and the current exchange rate at December 31, 2022 was P8.50. What is the other comprehensive income — translation adjustment presented in equity in 2022 as a result of hedging? 87.50 4087-5 fort a 14,087.50 (6-55-8.50)x om © 7,.5%y gain cc, 20,675.00 a 0 ‘hal frarlaton ary 67-50 LOSE . Honda Phil. is a subsidiary of Honda Japan. The functional currency of Honda Phil. is peso while the presentation currency of its parent, Honda Japan is yen. For the year ended December 31, 2020, Honda Phil. has the following foreign currency denominated assets: Accounts Receivable of $1,000 and Prepaid Asset of $100. The historical rates of Accounts receivable and Prepaid asset are $1=P30 and $1-P20 and Pi=2Yen and P1=4Yen, respectively. The exchange rate on December 31, 2020 is 1$=40 and P1=3Yen. 1. In the separate statement of financial position of Honda Phil. on December 31, 2020, what is the book value of accounts receivable and prepaid asset, respectively? 8719