A220 - INTERMEDIATE ACCOUNTING 1

FINAL REQUIREMENT

REFLECTION PAPER

Real Excellence Online (REO) Webinar on Intermediate Accounting (FAR):

Foreign Currency Transactions With and Without Hedging

Held on Sunday, December 18, 2022

Via Live in Real Excellence Online (REO) CPA Reviewer FB Page

Submitted by:
Molina, Dianna Lynn L.
BSA-2 Block 4

Submitted to:
Ma’am Remedios A. Palaganas, CPA, MBA
Instructor
PART I: About the Guest Speaker
In the free online webinar held by Real Excellence Online (REO) CPA
Review on December 18, 2022, I met Atty. Ivan Yannick Bagayao, CPA, MBA. He
was the reviewer at that time with a topic of “Foreign currency transactions with
and without hedging”. Atty. Bagayao was the author of MAS and AFAR books, a
CPA Reviewer of more than 9 years, and a REO exclusive reviewer.
Our time on the webinar was well spent as we learned a lot from his
discussion. We were impressed by his professionalism during the webinar,
demonstrating that he is an excellent lecturer. Throughout the topic outline, he
effectively explained everything to his students and audience. Throughout the
presentation, he explained everything without difficulty and made sure the
viewers understood what he was saying. He used terms that students could
easily understand. In situations where there is a problem or conflicting
viewpoints, he also provides examples of how this idea applies. It is evident that
he did his best to explain and deliver the entire lesson to us.
PART II: Summary of the Webinar
On December 18, 2022, the REO held a free webinar. The objectives of
the webinar were to discuss about foreign currency transaction.
The webinar was an enlightening discussion about the foreign currency
transaction that covered the following topics:
A. How to determine Foreign Currency Transaction
B. 4 Important Transactions Without Hedging
C. Foreign Currency Transaction Applying Forward Contract As Hedge
Instruments

HOW TO DETERMINE FOREIGN CURRENCY TRANSACTION

Is it a foreign Is it a foreign
TRANSACTION SETTLED IN currency currency
BETWEEN transaction to transaction to
Domestic Corp.? Foreign Corp.?

1. DC & DC Do-Curr No No

2. DC & FC Do-Curr No Yes

3. DC & FC Fo-Curr Yes No

4. FC & FC Fo-Curr No No

FC = Foreign Corporation
DC = Domestic Corporation
Do-Curr = Domestic Currency (ex. PESO for Philippines)
Fo-Curr = Foreign Currency (ex. US Dollar for Philippines)

In a foreign currency exchange (ForEx) transaction, there are important

dates to consider. The transaction date (TD) is the date on which the purchase or
sale of services currency occurs, and the rate used was spot/historical. The
balance sheet date (BD) is the date when closing rates are used to calculate the
FOREX gain or loss, and the rate used was spot/closing. The third is the
settlement date (SD), which is the date when payment or receipt is due, and the
FOREX gain or loss is calculated at a rate of spot/actual.
Buying goods or services is an importing transaction and an exposed
liability position (E.L.P.) with an important rate at spot rate under purchase or sale
of goods or services. Selling goods and services, on the other hand, is an
exporting transaction and an exposed asset position (E.A.P.) with a significant
rate at the spot rate. In terms of currency purchase or sale, the forward rate is
used at the transaction date or balance sheet date, whereas the spot rate is used
at the settlement date. In addition, when speculating to sell, the forward rate is
applied at the transaction and balance sheet dates, whereas the spot rate is
applied at the settlement date.

4 IMPORTANT TRANSACTIONS WITHOUT HEDGING

1. IMPORTING TRANSACTION – EXPOSED LIABILITY POSITION (E.L.P.)
WITHOUT HEDGING
On the transaction date, the account to be debited is purchases, and the
account to be credited is accounts payable. If the spot rate rises during the
balance-sheet period, For-Ex transaction Loss is to be debited and accounts
payable is to be credited. If the spot rate falls, the accounts payable are debited
and the For-Ex transaction Gain is credited. If the spot rate rises on the
settlement date, both accounts payable and For-Ex transaction Loss will be
debited, while cash accounts will be credited. However, if the spot rate falls, only
the accounts payable are to be debited, while the For-Ex transaction gain and
cash are to be credited.

2. EXPORTING TRANSACTION – EXPOSED ASSET POSITION (E.A.P.)

WITHOUT HEDGING
In contrast to the importing transaction entries, the account to be debited
in an exporting transaction during the TD is accounts receivable, and the account
to be credited is sales. If the spot rate rises during the BD, accounts receivable
will be debited and the For-Ex transaction Gain will be credited. However, if the
spot rate falls, the For-Ex transaction Loss is debited and accounts receivable
are credited. During SD, if the spot rate falls, both cash and For-Ex transaction
losses are debited, and accounts receivable are credited. If the spot rate rises,
only the cash account will be debited, while the For-Ex transaction gain and
accounts receivable will be credited.

3. SPECULATION (TO BUY CURRENCY)

The entries will be FC Receivable from XD as the debited account, and
the Peso Payable to XD will be credited to the record forward contract at the
forward rate under TD. While in BD, FC Receivable from XD will be debited as
well; however, For-Ex transaction Gain will be credited; these will be the entries
only if the forward rate rises. If the forward rate falls, the For-Ex transaction Loss
account is debited, and the FC Receivable from XD account is credited. In SD, if
the spot rate rises, the FC Receivable from XD must be debited, while the For-Ex
transaction Gain must be credited. However, if the spot rate falls, the For-Ex
transaction Loss will be debited and the FC Receivable from XD will be credited.
In addition, payments to For-Ex dealers - XD, debit Peso Payable from XD, and
credit cash must be recorded. To record FC receipt, debit FC investment and
credit FC receivable from XD. Finally, to record the FC to DC conversion, debit
cash and credit investment in FC.
4. SPECULATION (TO SELL CURRENCY)
To record the forward contract at the forward rate during the TD, debit the
Peso receivable from XD and credit the FC payable to XD. If the forward rate
rises, the For-Ex transaction Loss will be recorded in debit and the FC payable to
XD will be recorded in credit in BD. However, if the forward rate falls, FC payable
to XD will be debited and For-Ex transaction Gain will be credited. Finally, if the
spot rate rises, the For-Ex transaction Loss is to be debited, while the FC
payable to XD is to be credited. In addition, if the spot rate falls, the FC payable
to XD will be debited and the For-Ex transaction Gain will be credited. In addition,
to record the collection of receivables from the For-Ex dealer - XD, debit cash
and credit Peso receivables from XD. To record the delivery of FC, debit the FC
receivable from XD and then credit the FC investment.

FOREIGN CURRENCY TRANSACTION APPLYING FORWARD CONTRACT

AS HEDGE INSTRUMENTS
A. Forward Contract to hedge an Exposed Liability Position
Increase in FR = Forex Gain in FWD Contract
Net F/x G/(L) = it depends on Spot and FWD Rate

B. Forward Contract to hedge an Exposed Asset Position

Increase in FR = Forex Loss in FWD Contract
Net F/x G/(L) = it depends on Spot and FWD Rate

C. Forward Contract to hedge a Firm Commitment to buy

Increase in FR = Forex Loss in FWD Contract
Net F/x G/(L) = Always Zero

D. Forward Contract to hedge a Firm Commitment to sell

Increase in FR = Forex Gain in FWD Contract
Net F/x G/(L) = Always Zero
PART III: What I have Learned
Taking part in the webinar and learning from Atty. Ivan Yannick Bagayao,
CPA, MBA, was a great experience. Throughout the lesson, I learned a lot. I
learned a lot of useful information that will help me in the future. It was very
interesting for me to learn how to determine foreign currency transactions,
including the four important transactions, both with and without hedging, which
Atty. Bagayao explained in a clear and concise manner, as well as all the
exercises he prepared.
The webinar helped me understand that distance learning is not as bad as
I thought. It gives us students the tenacity and motivation to learn even in difficult
circumstances. Furthermore, distance learning still offers us students greater
convenience and flexibility despite its numerous drawbacks. It is evident to me
that the REO lecturers or reviewers are committed to teaching us not only about
the topics and issues that are essential to our chosen course but also to guiding
us in learning and continuing to pursue our dreams by facing this way of learning,
even if it is challenging. In addition to the knowledge I have gained about foreign
currency transactions, I have also discovered that a teacher's commitment to
teaching and learning greatly impacts a student's success.
PART IV: E-Certificate and Documentary