Foreign Cur, " : ency Transaction and Translation F ‘OREIGN CURRENCY TRANSACTION: yow!0 Determine a Foreign Curren Transactioy mn: TRANSACTION | SETTLED | Isita foreign currency . oo | gcIWeeN i oe to Domestic transaction to -p6800 DO-cur ee Foreign Corp.? 2 DC &FC DO-Curr No ad 300 & FC Fo-Curr YES ie ZFC &FC Fo-Curr NO ~ +£C- Foreign Corporation )C-Domestic Corporation : (ex. US Dollar for **Do-Curr-Domestic Currency (ex. PESO-for Philippines) USA) “**Fo-Curr-Foreign Currency (ex. US Dollar for (ex. PESO for Philippines) USA) Important Dates to Consider in Foreign Exchange (ForEx): DATES: IMPORTANCE RATE USED | the date when the purchase or ’ sale of goods or services or |TD-Transaction Date | currency takes place SPOT/HISTORICAL the date when closing rates will | 8D- Balance Sheet be applied in computing for the [Date FOREX gain or loss SPOTICLOSING | the date when payment or | receipt shall be made and the | $0-Settiement Date _ | FOREX gain or loss computed | SPOT/ACTUALnd ‘Translation FE jon ai i nsaction oreign Currency Tra Different Rates in ForEx: KHANGE RATES | SYM SIGWFTCANCE 1. SPOT RATE SR | Rate TODAY and applicable ONY Es | Rate TODAY applicable in the 7 2. FUTURE RATE FR_ | FORWARD RATE 5 fion Date 3. HISTORICAL RATE | HR | Spot rate in the eT Tae 4.CLOSINGRATE | GR _| Spot rate in the Balance ome |S. ACTUAL RATE ‘AR_ | Spot Rate in the Settlement Dal tems to consider and their treatment of ForEx gain/ (loss): FOREX gaini(loss) EXAMPLE of MONETARY or ITEMS feported in NON-MONETARY , Cash, Accts Payable, Accts. 1, MONETARY PIL Receivable 2. NON-MONETARY: At Historical Cost PIL Equipment, Inventory, Building At Fair Value oc Investment in Equity Securities SPOT TRANSACTIONS: DATE MONETARY NON-MONETARY ITEM ITEM at Fair Value at Historical Cost 1D at SR (HR) at SR (HR) at SR (HR) BD at SR (CR) at SR (CR) at SR (HR) i) at SR (AR) at SR (AR) at SR (AR)tion ency Transaction and Translation [ERUNGE RATES [srw [__ SIONFIGANCE DAY [A.SPOTRATE | SR Rate TODAY and applicable TODAY p= Rate TODAY applicable in the FUTURE; at 2. FUTURE RATE FR | FORWARDRATE aa nthe Tr te [S.HISTORICAL RATE | HR | Spot rate in the Transaction oa [A CLOSINGRATE | CR | Spot rte in the Balance Sheet Date_ ['S. ACTUAL RATE AR | Spot Rate in the Settlement Date ttems to consider and their treatment of ForEx gain! (loss): | FOREX gairv(loss) EXAMPLE of MONETARY or ITEMS reported in NON-MONETARY R Cash, Accts Payable, Accts. 1, MONETARY PIL Receivable 2. NON-MONETARY: At Historical Cost PIL Equipment, Inventory, Building At Fair Value oct Investment in Equity Securities SPOT TRANSACTIONS: DATE MONETARY NON-MONETARY ITEM (TEM at Fair Value at Historical Cost 1 at SR (HR) at SR (HR) at SR (HR) BD at SR (CR) at SR (CR) at SR (HR) EE) at SR (AR) at SR (AR) at SR (AR) 320| FOREIGN CURRENCY TION: ne PURCHASE or SALE OF: ‘A. Goods or Services: “EXPOSED AT ABILITY } ORTING TRANSACTION _| POSITION E.LP) pt | AT “EXPOSED ASSET | SPOT EXPORTING TRANSACTION _| POSITION(E.AP) | RATE |B. Currency: = | eee Ton USEFORAND RATE AND SPOT FOREIGN CURRENCY TRANSACTION: : 4, IMPORTING TRANSACTION (EXPOSED LIABILTY POSITION) 1D: Purchases— (at Historical rate) Accounts Payable—- (at Historical rate) BD: For-Extrans.Loss—- (change in rates) Accounts Payable— (change in rates) (if the spot rates increases) Or Accounts Payable—— (change in rates) ‘ For-Ex trans. Gain-— (change in rates) (ifthe spot rate decreases) $D: Accounts Payable— (amount at BD) For-Ex trans. Loss— (change in rates) Cash— (at actual rate) (ifthe spot rates increases) ‘Accounts Payable (amountat BD) For-Ex trans.Gain— (change in rates) Cash— (at actual rate) (ifthe spot rate decreases) 321d Translation Foreign Currency Transaction an 2. EXPORTING TRANSACTION (EXPOSED ASSET POSITION) TD: ivable-—-(at Historical rate) . Account Receivable-—-(at Historical rate) (athistrcal Sales— a BD: Account Receivable—-(change in rates) (change in For-Ex trans. Gain— rates) (if the spot rates increases) or For-Ex trans. Loss-—- (change in rates) , (change in ‘Account Receivable— © rates) (ifthe spot rate decreases) SD: Cash— (at actual rate) (change in For-Ex trans. Gain-—- rates) Account Receivable—- (amount at BD) (if the spot rates increases) Cash— (at actual rate) For-Ex trans. Loss-—- (affecting the change) Account Receivable-— (amount at BD) (if the spot rate decreases) 3. SPECULATION (TO BUY Currency) TD: FC Receivable from XD-— {at forward rate) Peso Payable to XD-—- (at forward rate) (to record forward contract at forward rate) BD: FC Receivable from XD— (changes in FWD rate) ForEx Trans. Gain— (changes in FWD rate) (ifthe forward rate increases) 322Foreign Currency Transaction and Translation Trans. fons — Forkx Trae. tose (changes in FWD rate) FC Receivable ir (rte foward rato “ ivable from XD (changes in FWD rate) FC Receivab gp: FC Receivable from XO (changes in spot rate) ForEx Trans. Gain—- - (changes in spot rate) (ifthe SPOT rate increases) aaa For€x Trans. loss —- (changes in spot rate) FC Receivable from XD (changes in spot rate) (ifthe SPOT rite decreases) Peso Payable from XD—— (et FW rate) Cash— (at FWD rate) (to record payment to ForEx Dealer -XD ) Investment in FC-—— (at sPor rate) FC Receivable from XD-— (at SPOT rate) (to record receipt of foreign Currency) Cash— (at SPOT rate) Investmentin FC— (at SPOT rate) {to record the conversion of FC to DC) 4, SPECULATION (TO SELL Curren TD PESO Receivable from XD— (at forward rate) FC Payable to XD—- (at forward rate) {to record forward contract at forward rate) BD For-Ex Trans. loss —~ (changes in FWD rate) FC Payable toXD—- (changes in FWD rate) (ifthe forward rate increases) FC Payable to XD-—- (changes in FWD rate) For-Ex Trans. Gain— (changes in FWD rate) 323action and Translation ns: Foreign Currency Tra (if the forward rate decreases) SD For-Ex Trans. lo (changes in spot rate) FC Payable to XD-— (changes in spot rate) (ifthe SPOT rate increases) hanges in spot rate) aes mae Trans, Gain—- (changes in spot rate) (ifthe SPOT rate decreases) Sah (at FWD rate) PESO Receivable from XD—- (at FWD-rate) (to record collection of receivable from For-Ex Dealer -XD ) FC Payable to XD-— (et SPOT rate) Investment in FC—- (at SPOT rate) (to record the delivery of foreign Currency to XD) FOREIGN CURRENCY TRANSLATION: TRANSLATION: Of functional currency to presentation currency if the currenoy is NOT the curreency of Hyper inflationary Economy ACCOUNTS: [Closing rate method |Temporal Method [Monetary items [Closing rate Closingrate /iabittes OP Moneta tems: pot carriedat historical cost [Closingrate Historical Rate carried at fairvalue [Closing rate [Revaluation Rate Equity (Common stocks and APIC) _|kistorical Rate [Historical Rate [Retained Earnings*) DW Income / Expense: Related to monetary items |Average Rate lAverage Rate Related to non-monetary items [Average Rate lHistorical Rate 324Forei, ' £2 Currency Transaction and Translation METHOD: Closing Rate | [Remeasurement Characteristic: j. he Subsidiary’s operation ig INDEPENDENT of Parent’, loperation: Jz. The Functional currency of the lgubsidiary is its LOCAL ICURRENCY UNIT (LCU); YES NO 3. The translation adjustment is lpresented in OTHER COMPREHENSIVE INCOME (a¢1); DERIVATIVES & HEDGING OPTION CONTRACTS: PARTIES: Option Holder - option buyer (has the right to buy or sel) Option Writer — option seller (grants the holder this contractual right) OPTION: IF Spot / Market Price > Exercise Strike / Option Price CALL — in the money (Holder will exercise the option) PUT — out of the money (Holder will not exercise the option) « _IfSMP = ESP—at the money whether call or put option OPTION PREMIUMS: (at the inception of FC. Option) * Time Value - OPTION is AT / OUT of the money Intrinsic Value - OPTION is IN the money ‘Accounting: * _Non-Split Accounting — the time value element will be included in assessing the hedge effectiveness * Split Accounting — the time value element will be excluded in assessing the hedge effectiveness 3 325