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On December 1, 2021, Snacku-31 Corporation, a Philippine Company based in Makati, ordered 1,000
units of merchandise from a US Firm, FOB Shipping Point, for $10,000, payable on January 15, 2022.
The merchandise was shipped on December 10, 2021, and was received by Snacku-31 on December 17,
2021. Snacku-31 paid the invoice on due date. The corporation did not enter into any form of hedging
activity.
On March 15, 2022, 300 units of the merchandise purchased were sold in cash to Ms. Tripper Company,
a Taguig-based firm, at a total price of P250,000.
The spot rates for US Dollars on different dates are:
Snacku-31 Corporation uses the perpetual inventory system to account for its inventories.
Problem 2
On November 1, 2021, Shining Company, a Philippine-based firm, received an order for 1,500 units of
its products for $50,000. The inventory was shipped by Shining and the customer was billed on
December 1, 2021, for which the customer issued a 3-month, 12% promissory note. Customer made
full payment on March 2, 2022. Shining’s fiscal year end is December 31. Assuming that Shining did not
engage in any form of hedging activity.
The following are the spot rates for US Dollars:
1. How much is the FX gain or loss from the Hedge Instrument in 2021?
A. 12,500 gain
B. 12,500 loss
C. 2,500 loss
D. 2,500 gain
2. How much is the fair value of the forward contract asset/liability in the December 31, 2021
statement of financial position?
A. 2,500 liability
B. 2,500 asset
C. 12,500 liability
D.0
3. How much is the gain or loss from the hedging activity in 2022?
A. 5,000 gain
B. 5,000 loss
C. 12,500 gain
D. 7,500 loss
Problem 4
On December 15, 2021, Shimmering Co. purchased goods from a Korean firm for 40,000 won, to be
settled on January 15, 2022 Shimmering Co. was concerned about the fluctuation in the Korean won,
so on this date, Shimmering Co. entered into a 30-day forward contract to buy 40,000 won for ₱49,600
from a bank at the forward rate of ₱1.24.
Relevant rates are shown below:
Dec. 15, 2021 Dec. 31, 2021 Jan. 15, 2022
Spot rate 1.20 1.26 1.30
Forward rate 1.24 1.27 1.30
2. How much is the net cash paid/received at the time of the settlement of the hedge item and
hedge instrument in 2022?
A. 52,000 paid
B. 49,600 received
C. 49,600 paid
D. 52,000 received
TOA:
1. In case of hedging transaction designated as fair value hedge, which of the following statements is
correct?
A. The gain or loss from remeasuring the hedging instrument/derivative designated as fair value
hedge shall be recognized in profit or loss.
B. The gain or loss on the changes in fair value of hedged item attributable to the hedged risk
shall adjust the carrying amount of the hedged item and be recognized in profit or loss.
C. Both A and B.
D. Neither A nor B.
2. In case of hedging transaction designated as cash flow hedge, which of the following statements is
correct?
A. The portion of the gain or loss on the hedging instrument/derivative designated as cash flow
hedge that is determined to be an effective hedge or the change in intrinsic value of the
derivative designated as cash flow hedge shall be recognized in other comprehensive income.
B. The ineffective portion of the gain or loss on the hedging instrument/derivative designated as
cash flow hedge or the change in time value of the derivative designated as cash flow hedge
shall be recognized in profit or loss.
C. The cumulative other comprehensive income recognized in equity arising from cumulative
changes in intrinsic value of derivatives designated as cash flow hedge shall be reclassified from
equity/cumulative OCI to profit or loss as a reclassification adjustment in the same period during
which the hedged forecast cash flows affects profit or loss.
D. All of the above.
4. How shall an entity account for hedging transaction classified as hedge of firm commitment?
A. Cash flow hedge only
B. Fair value hedge only
C. Undesignated hedge only
D. IAS 39 gives the entity the option to elect either cash flow hedge or fair value hedge for hedge
of firm commitment.
5. Under PAS 21, what is the initial measurement of foreign currency denominated transaction?
A. Both monetary and nonmonetary items are measurement initially at transaction or historical
rate.
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.
6. Under PAS 21, what is the subsequent measurement of nonmonetary items?
A. Closing rate
B. Transaction rate
C. Average rate
D. Monthly rate
2. How much is the initial cost of the inventory acquired on March 31, 2022?
A. 2,300,000
B. 1,950,000
C. 1,900,000
D. 2,200,000
Problem 6
On June 1, 2021, the company forecasted the purchase of 5,000 units of inventory from a foreign
vendor. The purchase would probably occur on September 1 and required the payment of 100,000
foreign currencies (FC).
On June 1, the company purchased a call option to buy 100,000 FC at a strike price of 1 FC = 0.55 during
September. An option premium of P900 was paid. Assume the use of split accounting meaning the
changes in the value of the option will excluded from the assessment of hedge effectiveness.
Spot rates, strike price and option values are as follows:
On September 1, the company purchased 5,000 units of inventory at a cost of 100,000 FC. The option
was exercised on September 1.
1. How much is the FX gain or loss to be recognized in Profit and Loss on June 30?
A. 450
B. 250
C. 200
D. 0
Problem 7
On January 1, 2021, Kisses Inc. paid P16,000 cash to acquire a put foreign exchange option for 1,000,000
baht, with an expiration date of December 31, 2021. The option hedges 2021’s forecasted exporting
sales of 1,000,000 baht. Kisses’s fiscal year ends June 30. Assume the use of split accounting.
1. The foreign exchange gain or loss on option contract to be recognized in Profit/Loss on June 30,
2021 is:
A. 65,000 gain
B. 5,000 loss
C. 5,000 gain
D.0
3. Assuming that the forecasted transaction was consummated on December 31, 2021, and the put
option was exercised, how much is the sales revenue to be recognized on December 31, 2021?
A. 1,150,000
B. 1,190,000
C. 1,120,000
D. 1,200,000