Multiple Choice Problems

1. a
The peso is the functional currency, so a remeasurement (or temporal method) is appropriate. Cash and
accounts receivable are monetary assets remeasured at current exchange rate of P47,500 and P95,000,
respectively. Inventory is a nonmonetary asset (carried at market value) are remeasured at the current
exchange rate of P76,000. Land and equipment, both nonmonetary assets (carried at cost) are remeasured at
the historical exchange rate of P54,000 and P135,000, respectively.
2. b
Because the functional currency is the local currency, a translation (or current rate method) is required. All
assets accounts are translated at current rates.
3. a
The foreign currency is the US dollars, so a translation (or current rate method) is appropriate. All assets are
translated at the current exchange rate of P1,270,000.

4. c The peso is the functional currency, so a remeasurement (or temporal method) is appropriate. Accounts
receivable is a monetary asset remeasured at current exchange rate of P175,000. Inventories (carried at
cost) is remeasured at the historical exchange rate of P450,000. Prepaid insurance and land, both
nonmonetary assets (carried at cost) are remeasured at the historical exchange rate of P45,000 and
P100,000, respectively.
5. d
The foreign currency is the LCU, so a translation (or current rate method) is appropriate. All assets are
translated at the current exchange rate of P215,000.

The peso is the functional currency, so a remeasurement (or temporal method) is appropriate. All accounts
receivable are monetary assets remeasured at current exchange rate of P150,000 (P100,000 + P50,000).
Prepaid insurance and patents, both nonmonetary assets (carried at cost) are remeasured at the historical
exchange rate of P30,000 and P45,000, respectively.
6. a
LCU – it is assumed that historical rate is not practicable (despite the presence of it), then PAS 21 requires
the use of average rate [(2,600,000 - 0)/10 years x 1.8LCU per peso = P144,444]

Peso - expense related to nonmonetary asset such as depreciation should be remeasured using the historical
exchange rate (exchange rate when the equipment was acquired), i.e., :
20x2: (1,700,000 LCU – 0)/10 years = 170,000 LCU /1.5 LCU per peso..P113,333
20x3: (900,000 LCU – 0)/10 years = 90,000 LCU /1.6 LCU per peso…… 56,250
Total………………………………………………………………………………P169,583

7. a
LCU – the current rate method is used since the term “translated” was used, a translation (or current rate
method) is required. Inventory account is translated at current rate (25,000 LCU / 2 LCU per peso =
P12,500)

Peso – the peso is the functional currency, so a remeasurement (or temporal method) is appropriate.
Inventory is a nonmonetary asset (carried at cost) is remeasured at the historical exchange rate of 2.2 LCU
per peso (25,000 LCU / 2.2 LCU per peso = P11,364)

8. b The foreign currency is the functional currency, so a translation (or current rate method) is appropriate. All
assets (including inventory) are translated at the current exchange rate [100,000 x P.17].

9. c There is no indication that the historical rate is not practicable or any indication that the revenue and
expenses account were incurred evenly throughout the year and at the same time the historical rate is given,
therefore, cost of goods sold is translated at the exchange rate in effect at the date of accounting
recognition, which is the date the goods were sold [100,000 x P.18].
10. d The foreign currency is the functional currency, so a translation (or current rate method) is appropriate. All
assets are translated at the current exchange rate of P.19.

11. c The peso is the functional currency, so a remeasurement (or temporal method) is appropriate. Inventory is
a nonmonetary asset (carried at cost) is remeasured at the historical exchange rate of P.16. Marketable
equity securities is a nonmonetary asset (carried at market value) are remeasured at the current exchange
rate of P.19.

12. a
LCU Peso
is Functional Currency is Functional Currency
P120,000  = 2/15/x4 Peso value P10,000  = Foreign currency
(110,000) = 12/31/x3 Peso value transaction gain
P 10,000  = Foreign currency 30,000  = Remeasurement gain
transaction gain P40,000  = Foreign exchange
Gain

Note: The term “restating” used by foreign subsidiary is an indication that the temporal or
remeasurement method is used.

13. a
LCU Peso
is Functional Currency is Functional Currency
P15,000  = Preadjusted foreign P15,000  = Preadjusted foreign
exchange loss exchange loss
6,000  = Foreign currency 6,000  = Foreign currency
transaction loss transaction loss
        ($100,000 - $106,000) 20,000  = Remeasurement gain
P21,000  = Foreign exchange P41,000  = Net foreign
loss exchange loss

Note: The term “restatement” used by foreign subsidiary is an indication that the temporal or
remeasurement method is used.

14. b
Consideration transferred P160,000
Less:
Book and fair values of sub's net assets
680,000 FC x P.21 x .90 = 128,520
Positive excess: Goodwill (partial) P 31,480

Based on the choices given, the question is leaning on the partial goodwill approach. Since, there is no choice
available for full-goodwill approach.

15. c
          Pesos                          FC                 
FC
Goodwill P10,500 50,000 (P10,500 / P.21)
Impairment 1,100 (FC 5,000 x P.22) 5,000 (FC 50,000 / 10)

16. a - Impairment loss = P10,500 / 10 = P1,050

17. a - The foreign currency is the functional currency, so a translation (or current rate method) is appropriate. All
assets (including inventory) are translated at the current exchange rate [48,000 FC x P1.53 = P73,440].
18. a - The peso is the functional currency, so a remeasurement (or temporal method) is appropriate. Inventory is a
nonmonetary asset (carried at cost) is remeasured at the historical exchange rate, but since the historical
exchange rate cannot be specifically identified and purchases happens evenly throughout the period, therefore
20x4 historical (average – which is unusual for a remeasurement method but allowed on exceptional cases such
as No. 33) rate of P1.45 is used. Thus:

Cost: 50,000 FC x P1.45 per FC (lower)………………………………………P 72,500

Market: 48,000 FC x P.153 per FC…………………………………………….P 73,440

Under the temporal method, since the valuation of inventory is at historical exchange rate which
leads to valuation at cost (average in this case), so the LCM rule is applied, in contrast to the
current rate method (in No. 32), wherein the valuation of inventory is outright current exchange
rate.

19. a - the current rate method is used since the term “translate” was used, a translation (or current rate method) is
required. Dividend declared and paid is translated at historical exchange rate at the date of declaration. i.e. 121
FC to P1.

20. a – [1,500,000 baht / .630 baht, the average rate (historical rate is not practicable because the data of sales per
transaction were not given) = P2,380,952]

21. b – (280,000 / .620 baht, the current rate = P451,613)

22. c
Foreign Exchange
Currencies Rate Pesos
Net Assets (SHE), beginning…………… 20,000 .15 (HR) 3,000
Add: Net Income: (30,000 – 20,000)…. 10,000 .19 (HR) 1,900
Net Assets (SHE), ending……………….. 4,900
Net Assets (SHE), ending……………….. 30,000 .21 (CR) 6,300
Translation adjustment
(positive – credit) – gain……………… 1,400

SHE – stockholders’ equity.

HR (historical rate) was used for Net Income (Sales and Costs of Sales since the details of transaction
were given.)

CR (current rate) was used for Net Assets (Assets and Liabilities account) to determine the ending balance,
so that the translation gain should be properly determined.
23. a
FC Exchange Rate Pesos
Beginning net monetary assets, 1/1…………… 100,000 x P.16 = P16,000
Increases in net monetary assets:
Sale of inventory............................................ 50,000 x P.20 = 10,000
Decreases in net monetary assets:
Purchase of equipment................................... (60,000) x P.16 = (9,600)
Purchase of inventory.................................... (30,000) x P.18 = (5,400)
Transfer to parent........................................... (10,000) x P.21 = (2,100
Ending net monetary assets, 12/31................................ 50,000 P 8,900
Ending net monetary assets at
the current exchange rate............................... 50,000 x P.22 = (11,000
Remeasurement gain..................................................... P(2,100
24. b – the term “translation adjustments” was used indicating that the current rate method is in effect (in contrast to
the term “remeasurement adjustments” used by the temporal method), therefore any translation debit (which is a
loss) will be classified as other comprehensive income.
25. a - the foreign currency is the functional currency, so a translation (or current rate method) is appropriate. All
assets (including inventory) are translated at the current exchange rate [120,000 FC x P.20 = P24,000].
26. e – Current Rate Method. The same situation with No. 9 except that the that the historical rate is not
practicable since the rate on January 17, 20x5 (date of sale) were not given, therefore, cost of goods sold is
translated at the average exchange rate for 20x5 which is P.24 (120,000 FC x P.24 = P28,800).

27. d
Remeasurement
Exchange
Accounts (FC) Rate Pesos
(H)
Beginning inventory 500,000 * P.00148 P 740
Purchases 1,000,000 (A) .00160 1,600
Total 1,500,000 P2,340
Less: Ending inventory 400,000 (A) .00162 __648
Cost of goods sold 1,100,000 P1,692
*not specifically identified unlike No. 46, may also be termed as average (historical) rate

28. b – If the functional currency is the currency of a third country, r emeasure (temporal method) from LCU into
the functional currency; then translate ( c u r r e n t r a t e m e t h o d ) into peso by using the average
exchange rate since historical rate is not practicable (no data available on the specific date the items that were
purchased) , i.e., 1,100,000 FC x P0.00160 = P1,760. It should be noted that the requirement is “translation”
of cost of goods sold which means that the value of cost of goods sold should be under the current rate
method.

29. c
Remeasurement
Exchange
Accounts (FC) Rate Pesos
Beginning inventory 10,000 (H) P1.60 P 16,000
Purchases 80,000 (A) 1.50 120,000
Total 90,000 P136,000
Less: Ending inventory 15,000 (A) 1.45 __21,750
Cost of goods sold 75,000 P114,250

30. b – If the functional currency is the foreign currency, then cost of goods sold will be translated using the
average exchange rate since historical rate is not practicable (no data available on the specific date the items
that were purchased) , i.e., 75,000 FC x P1.50 = P112.500.

31. b
Remeasurement
Exchange
Accounts (FC) Rate Pesos
Beginning inventory 20,000 (H) P.93 P 18,600
Purchases 400,000 (A) .96 384,000
Total 420,000 P402,6 00
Less: Ending inventory _15,000 (A) .99 __14,850
Cost of goods sold 405,000 P 387,750
*not specifically identified unlike No. 46, may also be termed as average (historical) rate
32. c - historical rate is not practicable since the rate on date of acquisition is not given unlike No. 9, therefore, cost
of goods sold is translated at the average exchange rate for 20x5 which is P.96 [405,000 FC (refer to No. 48) x
P.96 = P388,800).

33. d – refer to No. 31

34. e – under the current rate method, all assets are translated at the current exchange rate, therefore the inventory
should be translated at P1.01 (FC 15,000 x P1.01 = P15,150).

35. a – under the temporal method, inventory being a nonmonetary asset (carried at cost) is remeasured at the
historical exchange rate, but since the historical exchange rate cannot be specifically identified and purchases
happens evenly throughout the period, therefore 20x4 historical (average – which is unusual for a
remeasurement method but allowed on exceptional cases such as No. 33) rate of P1.43 is used. Thus:

Cost: 300,000 LCU x P1.43 per LCU (lower)………………………………………P 429,000

Market (NRV at replacement cost) : 320,000 LCU x P1.42 per LCU…………P 454,400

Under the temporal method, since the valuation of inventory is at historical exchange rate which leads to
valuation at cost (average in this case), so the LCM rule is applied, in contrast to the current rate method (in No.
53), wherein the valuation of inventory is outright current exchange rate.

36. a - under the current rate method, all assets are translated at the current exchange rate, therefore the
inventory should be translated at P1.42 (FC 320,000 x P1.42 = P454,400).

37. a CNI, P3,100,000 and Cons. CI, P3,220,000

Consolidated Net Income for 20x4
Net income from own/separate operations:
P Company P2,000,000
S Company 1,100,000
Total P3,100,000
Less: Non-controlling Interest in Net Income* P220,000
Amortization of allocated excess 0
Goodwill impairment _____ 0 220,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P2,880,000
Add: Non-controlling Interest in Net Income (NCINI) 220,000
Consolidated Net Income for 20x4 P3,100,000
Add: Comprehensive Income 120,000
Consolidated Comprehensive Income P3,220,000
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company P 1,100,000
Less: Amortization of allocated excess (refer to amortization table above) 0
P 1,100,000
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) P 220,000
Add: NCI on Comprehensive Income (translation gain)
(P120,000 x 20%) 24,000
Non-controlling Interest in Comprehensive Income P 244,000

38. a – regardless of the method used (whether current rate or temporal method, the rate to be used should be the
historical rate on the date of declaration, i.e. P.23 (20,000 LCU x P.23 x 75% = P3,450).
39. c - Translation adjustment loss (debit): P8,000 x 75% = P6,000
40. c - under the current/closing rate method (the functional currency of Transport Corporation is the LCU),
the translation adjustments on the goodwill, if any and the fair value differential relating to the patent as
they are considered net assets of Transport and are translated at the current or closing rate.
The translation adjustments are as follows:
On the fair value differential:
Undervalued patent on 1/1/20x4: P25,000 / P.20 = FC 125,000……. P 25,000
 Less: Amortization expense [125,000/ 5 years = FC 25,000 x P.22]…. ( 5,500)
Undervalued patent, net on 12/31/20x4……………………................ P 19,500
Undervalued building, net on 12/31/20x4 [(125,000 FC – 25,000 FC
= 100,000 FC x P.24………………………………………………………. 24,000
Translation adjustment gain on undervalued patent (OCI)…….. P 4,500

41. b - Amortization expense [125,000/ 5 years = FC 25,000 x P.22] = P5,500. Under the current rate method, the
historical rate is not given therefore, historical rate is not practicable to be use, and then PAS 21 requires the
use of average rate.

42. a – Current rate method, (50,000 FC x P.90, current = P45,000)

Number of Foreign Currencies (FCs)
Sales: P40,000 / P.80 = 50,000 FC
Cost: P30,000 / P.80 = 37,500 FC

43. c – Current rate method:

Unrealized intercompany profit: (50,000 FC – 37,500 FC) x P.80, historical rate = P10,000.

44. d – (P45,000 – P10,000, unrealized profit = P35,000)

45. e
FC Pesos
Exchange
Debit Credit rate Debit Credit
Common stock 5,000,000 .20 1,000,000
Purchases 8,000,000 .18 1,440,000
Sales 12,000,000 .18 2,160,000
Cash* 8,000,000 .16 1,280,000
Equipment 1,000,000 _________ .16 _160,000 _________
17,000,000 17,000,000 2,880,000 3,160,000
Translation loss _280,000 ________
3,160,000 3,160,000
*5,000,000 – 8,000,000 + 12,000,000 – 1,000,000
Apply to rules under the current method.

48. b – under the current rate method, revenues and expenses will be translated using the average rate since
historical rates are not practicable (with revenues and expenses are not identified as to the date of acquisition)
49. b –
FC Exchange rate Pesos
Net assets, 1/1/20x4 0 P 0
Changes in net assets, 20x4
Issued common stock 1,000,000 1 FC / P.48 2,083,333
Net income 80,000 1 FC / P.44 181,818
Dividends paid ( 20,000) 1 FC / P.46 ( 43,478)
Net assets, 12/31/20x4 1,060,000 P2,221,673
Net assets, 12/31/20x4 at current rate 1,060,000 1 FC / P.42 _2,523,810
Translation adjustment – increase (gain) P 302,137
Apply to rules under the current method.
50. a

51. b

52. b
 On November 29, 20x4, the following amounts should be recorded by Manilow, ignoring interest payable
on the loan. The cash advance from the bank is translated at the rate on the date that it was received
(1,520,000 yen x P1 / 1.52 yen = P1,000,000) and a liability recorded for the same amount.

53. b
As the loan was still outstanding at the end of the period and it is a monetary item, it should be retranslated at
the exchange rate at the end of the reporting period (1,520,000 yens x P1 / 1.66 yens = P915,663 ). The
exchange difference should be recognized as a gain in profit or loss for the period. (P1,000,000 less
P915,663 = P84,337).

PAS 21 par. 28 states that “Exchange differences arising on the settlement of monetary items (i.e. bank loan
payable in this case) or on translating monetary items at rates different from those at which they were
translated on initial recognition during the period or in previous financial statements shall be recognized in
profit or loss in the period in which they arise.

54. b
The goodwill at the date of acquisition is P100,000 (400,000 baht x P1 / 4 baht). At the year-end it is
retranslated to P80,000 (400,000 baht x P1/5 baht). The difference of P20,000 is recorded as an exchange
loss and reported in other comprehensive income.

55. c – Nt Dollar 175,000 / Nt Dollar 1.298 = P134,823

Goodwill arising from acquisition…………………………………………… Nt Dollar 175,000
Divided by: Closing/Current rate (Nt dollar : peso)………………………Nt Dollar 1.298
Goodwill in the consolidated balance sheet……………………………. P134,823

In the consolidated financial statements, any goodwill arising on the acquisition of a foreign operation
should be treated as an asset of the foreign operation. The goodwill should therefore be expressed in the
functional currency of the foreign operation and translated at the closing rate at the date of each statement of
financial position. The same treatment is required of any fair value adjustments to the carrying amounts of
assets and liabilities arising on the acquisition of a foreign operation. In both cases exchange differences are
recognized in other comprehensive income, rather than as part of the profit or loss for the period.

56. b
Fair value adjustments (undervaluation of land)……………… …………….Nt 50,000
Divided by: CLOSING / CURRENT RATE on the balance sheet
(Nt dollar per peso)………………………………………………… 1.56
Fair value adjustments…………………………………………………………... P 32,051

PAS21 par. 47 requires fair value adjustments to the carrying amounts of assets and liabilities arising on
the acquisition of a foreign operation to be treated as assets and liabilities of the foreign operation.
Therefore they are translated at the closing rate of exchange.

57. c – 160,000 yens x P1 / 2.40 yens = P66,667

PAS 21 par. 23 (a) requires the foreign currency monetary items, such as trade payables, of an entity to be
retranslated at the closing rate at the end of a reporting period.

58. c
Consideration Transferred…………………………………………………………. 9.0 million
Less: Fair value of net assets acquired………………………………………….. 6.0 million
Goodwill………………………………………………………………………………. 3.0 million
Divided by: Current/Closing rate on the balance sheet……………………. 2.0 baht per peso
Goodwill in the Consolidated Balance Sheet………………………………….P1.5 million

Examinees or students may be misled that since the functional currency is peso, the temporal method (applied
only in case of subsequent to date of acquisition) should then be applied wherein goodwill or any fair value
 adjustments is considered as a non-monetary asset carried at historical cost be remeasured (or translated)
using historical rate (which in this problem is 1.5 baht = P1). But the problem do not fall under this category –
the temporal method, instead it is an example of a goodwill and fair value adjustments arising from acquisition
of subsidiaries.

Goodwill arising from the Acquisition of Subsidiaries (Date of Acquisition)

When a company acquires a controlling interest in another company, the excess of the purchase price over the
acquirer’s interest in the fair value of the identifiable net assets of the acquired company is recognized as
goodwill on consolidation. In the context of a foreign company, the issue arises as to whether goodwill is an
asset of the acquired company or an asset in the acquirer’s books. If it is an asset of the acquired subsidiary,
the goodwill is a foreign asset which should be translated in the same manner as any other asset of the
acquired subsidiary, which may give rise to a translation difference. However, if it is treated as an asset in the
acquirer’s books, there is no need for translation.

Pas 21 par. 47 states that:

“Any goodwill arising on the acquisition of a foreign operation and any fair value
adjustments to the carrying amount of assets and liabilities arising on the acquisition of
that foreign operation shall be treated as assets and liabilities of the foreign operations.
Thus they shall be expressed in the functional currency of the foreign operation and shall
be translated at the closing rate…”

Subsequent to date of acquisition, accordingly goodwill has to be measured in the functional currency of the
foreign operation. If the functional currency of the foreign operation is the local currency, the goodwill on
acquisition is to be translated at the closing rate. On the other hand, if the functional currency of the foreign
operation is the parent’s currency (or the presentation currency), goodwill on acquisition is treated as a non-
monetary asset and remeasured at the exchange rate of the acquisition of the foreign operation,

59. b - refer to No. 58 for further discussion.

The goodwill at the date of acquisition is P100,000 (400,000 baht x P1 / 4 baht). At the year-end it is
retranslated to P80,000 (400,000 baht x P1/5 baht). The difference of P20,000 is recorded as an exchange
loss and reported in other comprehensive income.

In the consolidated financial statements, any goodwill arising on the acquisition of a foreign operation
should be treated as an asset of the foreign operation. The goodwill should therefore be expressed in the
functional currency of the foreign operation and translated at the closing rate at the date of each statement of
financial position. The same treatment is required of any fair value adjustments to the carrying amounts of
assets and liabilities arising on the acquisition of a foreign operation. In both cases exchange differences are
recognized in other comprehensive income, rather than as part of the profit or loss for the period.
60. a
Allocated Excess arising from consolidation………………………………………P1,200,000 baht
Divided by: CLOSING / CURRENT RATE on the balance sheet
(baht per peso) _ 2.0
Allocated Excess (over/under valuation)………………………………………... P 600,000
Refer to Nos. 55 and 58 for further discussion of using closing/current rate. Again, the same with No. 58, the
functional currency of peso is somewhat misleading; it does not refer to the use of temporal method on the
date of acquisition.

61. b = 60,000 LCUs x (P100,000 – P50,000)/P100,000 = 30,000 LCUs x P1/4 LCUs = P7,500
Note: The deferred profit included in the inventory should be translated based on the historical rate
(average rate if historical rate is not practicable) since it will eventually be treated as a revenue.
62. b – the P8,000 downward adjustment in liability indicates a gain on transaction presented in
statement of comprehensive income (income statement). The 60,000 occurred in translation since the functional
currency is the foreign currency, then current rate method is used and any cumulative translation gain or loss (AOCI)
will be in the stockholders’ equity.
63. c
Net income: 100,000 LCUs x P.70 (average rate since evenly)………………P 70,000
Less: Dividend paid: 20,000 LCUs x P.75 (historical rate)…………………….... 15,000
Effect on retained earnings – increase…………………………………………...P 55,000
64. d
Total assets P500,000
Total Liabilities and SHE
Liabilities P 300,000
SHE
Common stock 40,000
Retained earnings,1/1/x6 P 80,000
Add: Net income (P200,000- P150,000) 50,000
Less: Dividends _____-0- 130,000
AOCI (loss) ( 20,000) __450,000
Effect on the 20x6 exchange rate P 50,000

65. c
Retained earnings,1/1/x6 P 80,000
Add: Net income (P200,000- P150,000) 50,000
Less: Dividends _____-0-
Retained earnings,1/1/x6 P130,000

66. c
Hedging Instrument:
12 month -Forward rate date of hedging, 1/1/x6 P .60
Spot rate, date of expiration, 12/31/20x6 ____.56
P .04
x: No. of foreign currencies: LCUs 100,000
Forward Contract gain – Cash flow hedge (AOCI) P 4,000
Translation Loss (AOCI)
Net Assets (Assets – Liabilities): (700,000 – 600,000) x P.56,
current rate P 56,000
Stockholders’ equity: 100,000 LCU x P.60, historical rate __60,000 _4,000
Net AOCI P -0-

67. b
Selling price of subsidiary P 5,000,000
Less: Carrying/book value of subsidiary __4,000,000
Gain on sale of subsidiary P 1,000,000
AOCI – translation adjustment loss ___300,000
Net gain on sale of subsidiary P 700,000

68. d
PAS No. 29 does not establish an absolute rate at which hyperinflation is deemed to arise - but allows
judgment as to when restatement of financial statements becomes necessary. One of the characteristics of the
economic environment of a country which indicate the existence of hyperinflation includes:

“the cumulative inflation rate over three years approaches, or exceeds, 100%”
 The computation of cumulative inflation rate over three years is as follows: (210 – 90)/90 =
133.33%.

69. b - 64,000,000 x P.0085 = P544,000

70. a - 875,000 x P1.62 = P1,417,500
71. d - 4,300,000 x P.57 = P2,451,000
72. b – (930,000 - 600,000) P1.03 = P339,900 debit
73. c - 675,000,000 x P.0086 + 60,000,000 x P.0088 = P6,333,000
74. a - [(675,000,000 - 135,000,000)/8] P.0086 + (60,000,000/10) (8/12) P.0088 = P615,700
75. b-
Beginning balance 135,000,000 x P.0086 P1,161,000
Current period depreciation expense 615,700
[(675,000,000 - 135,000,000)/8] P.0086 +
(60,000,000/10) (8/12) P.0088
Ending balance P1,776,700

76. d - P1,529,000 + P52,000 - P490,000 - P253,000 - P352,000 = P486,000

77. b - (P692,000 + P18,000 - P185,000 - P72,000 - P126,000) .6 = P196,200
78. a - {[(198,000 - 138,000) + (720,000 - (650,000 - 230,000))/10] P.095} .9 = P7,695
79. c - (P690,000 - P351,000 - P103,000 - P125,000 - P12,000) .2 = P19,800
80. a - [P458,000 - P175,000 - P52,000 + P15,000 - (140,000 + 450,000/10) P.68] .2 = P24,040
81. d - [P760,000 - P260,000 - P80,000 - P20,000 - (100,000 + 260,000/10) P1.06] .4 = P114,576
81. a - (800,000,000 + 75,000,000) P.0084 = P7,350,000
82. b - [(800,000,000 - 300,000,000)/5] P.0088 + [(75,000,000/10) (3/12)] P.0086 = P896,125
83. c
Beginning balance 300,000,000
Current period depreciation expense [(800,000,000 - 101,875,000
300,000,000)/5] + [(75,000,000/10) (3/12)]
Ending balance (LCU) 401,875,000
Ending balance (pesos) 401,875,000 x P.0084 = P 3,375,750
84. b - P600,000 - P327,000 - P57,000 = P216,000
85. b - P370,000 + P760,000 + P374,000 + P36,000 + P30,000 - P572,000 - P472,000 - P550,000 =
P24,000 debit
86. a - P1,478,000 - P530,000 - P268,000 - P247,000 = P433,000
87. b - (P1,783,000 - P741,000 - P358,000 - P416,000) .7 = P187,600
88. b - {[(180,000 - 137,000) + (830,000 - 650,000)/10] P1.53} .8 = P74,664
89. b - (47,000 x P1.18 + 78,000 x P1.16) .8 = P116,752
90. a - (52,000 x P.66 + 76,000 x P.69) .9 = P47,196
91. c
(P120,000 - P86,000) .8 = P27,200 credit
92. b - (P1,623,000 - P847,000 - P179,000 - P252,000) .1 = P34,500
93. d - [P735,000 - P322,000 - P258,000 - (160,000 + 360,000/10) P.66] .3 = P7,692
94. c - [P1,200,000 - P420,000 - P190,000 - (110,000 + 180,000/10) P1.20] .2 = P87,280
95. a – the foreign currency is the functional currency, since historical rate (rate on date of transaction) is not
practicable to determine , then PAS 21 requires the use of average rate:
Share in net income: FC 25,000 x 100% x P.124……………….. P31,000
Less: Amortization of allocated excess………………………… 0
Income from subsidiary…………………………………………….P 31,000

96. d – regardless of what method used to translate the F/S of a foreign entity (subsidiary), the rate use to translate
dividends declared or paid would always be the historical rate on the date of declaration, i.e., P1.30 x FC 5,000
= P6,500.

97. c
Consideration transferred P402,000
 Less:
Book and fair values of sub's net assets
300,000 FC x P1.20x 100% = 360,000
Positive excess: Goodwill (partial) P 42,000

      Dollars                        Euros            

FC
Goodwill P42,000 35,000 (P 42,000 / P1.20)
 
Impairment    4,340 (FC3,500 x P1.24)  3,500 (FC 35,000 / 10)
FC
Balance P37,660 31,500

Translated
balance P41,580 (FC 31,500 x P1.32)

Translation adjustment: P41,580 minus P37,660 = P3,920 – use for No. 28.
98. b
Translation adjustment from translating the trial balance P 12,000 cr
Translation adjustments from translating goodwill 3,920 cr
Total translation adjustment P15,920cr

Multiple Choice Theories

1. D 9. a 17. c 25. d 33. a 41. d 49. c 57. c 65. b 73. a
2. C 10. c 18. c 26. c 34. a 42. c 50. c 58. d 66. d 74. a
3. C 11. a 19. d 27. b 35. b 43. c 51. b 59. a 67. b 75. c
4. D 12. b 20. b 28. a 36. c 44. a 52. a 60. a 68. e 76. a
5. C 13. b 21. c 29. d 37. c 45. b 53. c 61. a 69. e 77. a
6. B 14. c 22. d 30. b 38. a 46. c 54. c 62. b 70. d 78. b
7. A 15. c 23. c 31. b 39. a 47. d 55. b 63. a 71. d
8. D 16. a 24. a 32. d 40. c 48. c 56. b 64. e 72. a

Note for:
17. Note: Answer – d – under PAS 29 in relation to PAS 21, it requires restatement first before translation and neither of the two
methods is use. In fact all assets, liabilities and equity accounts are translated using current rates. In US, the temporal
method is used in cases of highly inflationary economy.
39. The unadjusted trial balance is remeasured regardless of the functional currency. For US GAAP, the answer should be
letter “D.
51. Because the peso is the functional currency, the financial statements must be translated using the current rate method.
Therefore, answers (a) and (d) can be eliminated. Because the subsidiary has a net asset position and the peso has
appreciated from P.16 to P.19, a positive translation adjustment will result.
52. All asset accounts are translated at current rates.
56. By translating items carried at historical cost by the historical exchange rate, the temporal method maintains the underlying
valuation method used by the foreign subsidiary.
54. Marketable equity securities are carried at market value and therefore translated at the current exchange rate under the
temporal method.
55. When the US dollar is the functional currency, PAS 21 requires remeasurement using the temporal method with
remeasurement gains and losses reported in income.
56. Wages payable is translated at the current exchange rate.
57. Gains and losses on hedges of net investments (whether through a forward contract, borrowing, or other technique) are
offset against the translation adjustment being hedged.
58. Remeasurement gains are reported in the income statement as a part of income from continuing operations.
64. When the remeasurement method is used, monetary accounts are restated at the exchange rate at the balance sheet date,
while nonmonetary accounts are restated using the exchange rate(s) at the date(s) the transaction(s) occurred which are
reflected in the account balance. In this question, bonds payable and accrued liabilities are both monetary accounts and
would be restated using the balance sheet exchange rate. Trading securities represent a nonmonetary account. Trading
securities would be restated using the balance sheet rate because the account balance is stated at the market values at the
balance sheet date. Inventories are also a nonmonetary asset. Since they are stated at cost, a historical exchange rate would
be used to restate inventories.
62. The current rate method of translation allows the use of a weighted average exchange rate for revenues and expenses that
occur throughout the year. Since both sales and wages expense occurs throughout the year, a weighted average exchange
rate can be used for translation.
63. For hedges of net investments in a foreign entity, the amount of the change in fair value of the hedging instrument is
recorded to other comprehensive income that then becomes part of the accumulated other comprehensive income. The
change in the translation adjustment during the period is reported as a component of other comprehensive income and then
carried forward to be accumulated in the stockholders’ equity section of the balance sheet with the other components of
other comprehensive income. Therefore, in this case in which a hedge of a net investment in a foreign entity is used, the
exchange gain on the hedge is reported along with the change in the translation adjustment.