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UNIVERSAL COLLEGE OF PARAÑAQUE

COLLEGE OF BUSINESS & ACCOUNTANCY

ADVANCED FINANCIAL ACCOUNTING AND REPORTING REVIEW 2 SCORE

MAJOR QUIZ 1

NAME:____________________ YEAR & SECTION:____________ DATE:______________

Instructions: from the following multiple-choice questions below, choose the letter
of the best answer. Shade your answer on the separate sheet provided.

PART I: SITUATIONAL

1. The following information applies to DATU MAMADRA Corporation’s sale of 10,000

foreign currency units under a forward contract dated November 1, 2023 for delivery
on January 31, 2024:

November 1, 2023 December 31, 2023

Spot rates P0.80 P0.83
30-day forward 0.79 0.82
90-day forward 0.78 0.81

DATU MAMADRA entered into forward contract to speculate in the foreign currency. In
DATU MAMADRA’s statement of comprehensive income for the year December 31, 2023,
what amount of forex loss should be reported from this forward contract?
A. P400
B. P300
C. P200
D. P0

Exposed is asset; FCP

[(0.78 – 0.82) x 10,000] P400

2. LEE Corporation purchased merchandise from MISAKI Company of Japan for 1,000,000
Yen. The merchandise was received on December 1, 2023, with payment due in 60 days
or on January 30, 2024. Also on December 1, 2023, LEE entered into a 60-day forward
contract with the bank to purchase the necessary 1,000,000 Yen for delivery on
January 30, 2024 to hedge the MISAKI transaction. Exchange rates for Yen on selected
dates were as follows:

12/1/2023 12/31/2023 1/30/2024

Spot rates P6.01 P6.16 P6.01
30-day forward 6.05 6.07 6.07
60-day forward 6.06 6.08 6.08

What is the forex gain (loss) from this transaction and hedge that will be reported
on LEE’s 2023 statement of comprehensive income?
A. (P130,000)
B. P130,000
C. P20,000
D. (P140,000)

Exposed is liability; FCR

Hedged item [(6.01 – 6.16) x 1,000,000 yen] = (150,000)
Hedge instrument [(6.06 – 6.07) x 1,000,000 yen] = 10,000
Net forex loss = 10,000 – 150,000 = 140,000

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3. KIM TAN, a money changer speculate in foreign currency as her business. On October
1, 2023, KIM bought a 180-day forward contract to purchase 5,000 US Dollar at a
forward rate of $1 = P56.50 when the spot rate was P56.000. Other exchange rates
were as follows:
Spot Rate Forward Rate for
3/31/2024
12/31/2023 P56.30 P56.60
3/31/2024 56.32

The forex gain (loss) recognized by KIM from this forward contract on 2023 is:
A. P1,500
B. (P900)
C. P500
D. (P10,000)

CF Hedge = for speculation

[(56.50 – 56.32) x 5,000] = (P900)

4. The Indian subsidiary of GHWEN Company reported cost of goods sold of 70,000
rupee on December 31, 2023. The January 1, 2023 inventory was 10,000 rupee and the
December 31, 2023 was 20,000 rupee.

Spot rate for various dates are as follows:

Date beginning inventory was acquired P1.60 = 1 rupee

Rate at January 1, 2023 P1.58 = 1 rupee
Weighted average rate for 2023 P1.50 = 1 rupee
Rate at ending inventory was acquired P1.45 = 1 rupee

What is the translated amount of cost of goods sold that should appear in the
consolidated statement of comprehensive income on December 31, 2023?
A. P105,000
B. P107,000
C. P101,000
D. P91,000

COGS (70,000 x 1.50) = 105,000

5. RIZALYN Company owns a subsidiary in Canada whose balance sheets in Canadian

Dollar for the last two years follow (in thousands):

Assets December 31, December 31,

2021 2022
Cash and Cash Equivalents 25,000 20,000
Receivables 112,500 137,500
Inventory 170,000 180,000
Property and Equipment - net 250,000 225,000
Total 557,500 562,500

Liabilities and Equity

Accounts Payable 65,000 85,000
Long-term Debt 312,500 275,000
Common Stock 125,000 125,000
Retained Earnings 55,000 77,500
Total 557,500 557,500

RIZALYN formed the subsidiary on January 1, 2021 when the exchange rate was 40
Canadian Dollar for 1 Philippine Peso. The exchange rate for 1 PHP on December 31,
2021 had increased to 45 Canadian Dollar and to 35 Canadian Dollar on December 31,
2020. Income earned evenly over the year, and the subsidiary declared no dividends
during its first two years of existence. How much is the cumulative translation
adjustment for 2022? (Round-off to 3 decimal places)
A. P1,350,000
B. P1,912,500
C. P975,000
D. P865,000

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6. On July 1, 2022, KARMINA Company forecasted the purchase of 50,000 units of
inventory from a foreign vendor. The purchase would probably occur on September 30
and require payment of 1,000,000 foreign currency. It is anticipated that the
inventory could be further processed and delivered to customers by early October.
On June 1, the company purchased a call option to buy 1,000,000 FC at a strike price
of 1 FC = P1.535 during September. An option premium of P900 was paid. Change in
the time value of the option will be excluded from the assessment of hedge
effectiveness. KARMINA Company’s accounting period ends every June 30.

June 1, 2022 June 30, 2022 September 30, 2022

Market Price (Spot P1.531 P1.5352 P1.536
Rate)
Fair value of Option P900 P1,300 P1,000

On September 30, 2022, the company purchased 5,000 units of inventory at cost of
103,000 FC. The option was settled/sold on September 30, 2022. What is the gain or
loss on option contract on September 30?
Equity Earnings
A. P1,000 (P1,100)
B. P800 (P1,100)
C. P1,100 (P1,000)
D. P1,100 P800

June 1, 2022 June 30, 2022 September 30, 2022

Intrinsic Value - 200 1,000
Time Value 900 1,100 -
Fair Value 900 1,300 1,000

Intrinsic Value
June 1 -
June 30 200
September 30 1,000 800

Time Value
June 1 900
June 30 1,100
September 30 - (1,100)

Use the following information in answering the next item(s):

The following assets of DESIREE Corporation’s South Korean subsidiary have been
converted into Philippine pesos at the following exchange rates:

Current Rates Historical Rates

Accounts Receivable P850,000 P875,000
Inventories 600,000 575,000
PPE 1,200,000 900,000
Totals P2,650,000 P2,350,000

7. If the South Korean subsidiary maintains an integrated operations with the

Philippine parent’s operations, the assets should be reported in the consolidated
financial statements of Manila Corporation and subsidiary in the total amount of
A. P2,650,000
B. P2,325,000
C. P2,350,000
D. P2,320,000

AR 850,000 + Inventories 575,000 + PPE 900,000 = 2,325,000

8. If the South Korean subsidiary maintains a stand-alone operations fully

independent from the parent’s operations, the assets should be reported in the
consolidated financial statements of Manila Corporation a subsidiary in the total
amount of
A. P2,320,000
B. P2,325,000
C. P2,350,000
D. P2,650,000

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9. Certain accounts of a foreign subsidiary in Japan of JENNY Corporation at December
31, 2022 have been translated into Philippine Peso as follows:

Translated at
Current rates Historical rates
Accounts receivable 120,000 100,000
Prepaid expenses 55,000 50,000
Property and equipment (net) 275,000 285,000

What total amount should be included in JENNY’s December 31, 2022 consolidated
statement of financial position for the above translated amounts.
A. P450,000
B. P425,000
C. P440,000
D. P450,000

10. On September GIAN Company entered into a firm commitment to buy machinery.
Delivery and passage of title would be on January 30, 2023 at the price of $63,000
Singapore dollars. On the same date, GIAN Company entered into a 150-day forward
contract with China Bank to buy the $63,000 Singapore dollars. Direct exchange rate
were as follows:
Spot rate Forward rate
September 1, 2022 P33.25 P31.30
December 31, 2022 P34.40 P33.70
January 31, 2023 P36.50 P36.50

Compute the gain or loss recognized by GIAN Company on the firm commitment in 2022
A. P176,400 gain
B. P151,200 loss
C. P176,400 loss
D. P151,200 gain

[(31.30 – 33.70) x 63,000] 151,200 loss

11. On December 31, 2022,YASMEEN Company, a foreign subsidiary in Hong Kong submitted
the following accounts stated in its local currency which is the functional currency
of the foreign operation. The subsidiary in Hong Kong acquired in 2022 is not
integrated with the operations of the parent in the Philippines. Moreover, its cash
flows do not directly affect the parent company. The foreign operation is self-
sufficient and is not dependent on the parent company for financing.

Total Assets HK$ 245,000

Total Liabilities 49,000
Ordinary Shares 122,500
Retained Earnings (Net Income) 73,500

The exchange rates are: Current rate, P8.75; Historical rate, P8.10; Weighted average
rate, P8.50.

Compute the cumulative translation adjustment (Dr) Cr on December 31, 2022

A. (P250,250)
B. P127,400
C. P98,000
D. P250,250

Total Assets (245,000 x 8.75) 1,715,000

Liabilities (49,000 x 8.75) 428,750

Ordinary Shares (122,500 x 8.10) 992,250
Retained Earnings (73,500 x 8.50) 624,750
Translation Adjustment - Credit 98,000
Total 1,715,000

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Use the following information in answering the next item(s):

DON JUAN MIGUEL Company entered into some derivatives during 2023 to mitigate the
risks involved to their foreign currency transactions. The following are the
transactions happened during 2023:

A. On November 1, 2023 DON JUAN MIGUEL Company entered into a firm commitment to
acquire a machinery from ALOLA Company in Hawaii. Delivery and passage of title
would be on February 28, 2024 at the price of $47,750. On the same date, to hedge
against unfavorable changes in the exchange rate, DON JUAN MIGUEL entered into a
120- day forward contract with PEE EN BII Bank for $47,750.

Spot rate Forward rate

November 1, 2023 P56.60 P58.50
December 31, 2023 P57.95 P57.75
February 28, 2024 P60.70 P60.70

Hedge Item Hedging Instrument

11/1/23 NO ENTRY 11/1/23
FCR 2,793,375
FCP (58.50 x 47,750) 2,793,375
12/31/23 12/31/23
Forex Loss 35,812.50 FCP 35,812.50
Firm commitment 35,812.50 Forex Gain 35,812.50
[(57.75 – 58.50) x 47,750]
2/28/24 2/28/24
Firm Commitment 140,862.50 Forex Loss 140,862.50
Forex Gain 140,862.50 FCP 140,862.50
[(60.70 – 57.75) x 47,750]

Machinery 2,793,375 FCP 2,898,425

(58.50 x 47,750) Cash 105,050
Cash (60.70 x 47,750) 2,898,425 FCR 2,793,375
Firm Commitment 105,050
(140,862.50 – 35,812.50)

B. DON JUAN MIGUEL also purchased inventory on November 30 for $25,000 payable March
31, 2024. On December 1, 2023, the entity entered into a forward contract to purchase
$25,000 and to be delivered on March 1, 2024 to hedge the purchase of inventory on
November 30, 2023. The relevant exchange rates are:

11/30/2023 12/1/2023 12/31/2023 2/28/2024 3/1/2024

Spot rate P45.00 P46.00 P50.00 P51.00 P55.00
Forward buying 90-days 44.00 43.00 42.00 41.50 45.00
Forward selling 90-days 47.00 48.00 42.50 44.50 46.00
Forward buying 60-days 50.00 51.50 48.50 54.00 50.00
Forward selling 60-days 52.00 53.50 51.00 55.00 51.50
Forward buying 30-days 55.00 50.50 49.50 56.50 47.50
Forward selling 30-days 54.00 51.00 52.50 53.00 56.00

Hedge Item Hedging Instrument

11/30/2023 12/1/2023
Purchases 1,125,000 FCR 1,200,000
AP 1,125,000 FCP 1,200,000
(25,000 x P45) (25,000 x P48)
12/31/2023 12/31/2023
Forex Loss 125,000 FCR 75,000
AP 125,000 Forex Gain 75,000
[(45 – 50) x 25,000] [(51 – 48) x 25,000]
3/31/2024 2/28/2023
Forex Loss 125,000 FCR 100,000
AP 125,000 Forex Gain 100,000
[(50 – 55) x 25,000] [(55 – 51) x 25,000]

AP (55 x 25,000) 1,375,000 FCP 1,200,000

Cash 1,375,000 Cash 175,000
FCR 1,375,000

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C. Lastly, on October 31, 2023, DON JUAN MIGUEL bought inventory from GALAR Company,
an Italian supplier costing 145,000 euros and the and the payment is due on January
31, 2024. The company also paid P50,000 to acquire an at-the-money call option for
145,000 euros and the option price was P17.50. Relevant data are given below:

10/31/2023 11/30/2023 12/31/2023 1/31/2024

Selling spot rate ? P17.61 P17.92 P18.33
Fair value of option ? P65,850 P72,500 ?

10/31/2023 11/30/2023 12/31/2023 1/31/2024

Intrinsic value - 15,950 60,900 120,350
Time value 50,000 49,900 11,600 -
Fair value 50,000 65,850 72,500 120,350

12. On the settlement date, the firm commitment should be debited/credited on the
amount of
A. P35,812.50
B. P140,862.50
C. P105,050
D. None

13. The amount of the forward contract receivable before settlement on February 28,
2023?
A. P1,200,000
B. P1,375,000
C. P1,187,500
D. P1,400,000

14. How much is the forex gain/loss to be recognized in OCI on December 31, 2023?
A. P44,950 loss
B. P60,900 gain
C. P60,900 loss
D. P44,950 gain

15. How much is the net effect in relation to the derivatives in current earnings
in 2023?
A. P110,812.50
B. P120,350
C. P29,262.50
D. P72,412.50

Firm Commitment – FX GAIN 35,812.50

Forward Contract – FX GAIN 75,000
Option Contract – TIME VALUE (11,600 – 50,000) (38,400)
NET AMOUNT to P/L = 72,412.50

PART II: THEORY OF ACCOUNTS

16. Which of the following statements involving the conversion of amounts from
foreign currency to functional currency is false?
A. A foreign currency transaction shall be recorded in the entity’s functional
currency by applying the spot exchange rate at the date when such transaction
becomes accountable in accordance with PFRS.
B. Foreign exchange rates can be expressed directly or indirectly. Indirect exchange
rates are divided to the units in foreign currency to arrive at its functional
currency equivalent.
C. An entity involved in an exportation transaction shall use the buying spot rate
in converting foreign currency to functional currency.
D. An entity involved in an importation transaction shall use the buying spot rate
in converting foreign currency to functional currency.

17. Under PAS 21, what is the accounting treatment of exchange differences arising
from translating financial statement in entity’s functional currency into entity’s
presentation currency?
A. It shall be presented and recognized in other comprehensive income with
reclassification adjustment to profit or loss.

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B. It shall be presented and recognized in other comprehensive income without
reclassification adjustment to profit or loss.
C. It shall be presented and recognized in profit or loss.
D. It shall be presented and recognized as change in accounting policy in statement
of changes in equity.

18. In comparing the translation and the remeasurement process, which of the
following is true?
A. The reported balance of inventory is normally the same under both methods
B. The reported balance of equipment is normally the same under both methods.
C. The reported balance of sales is normally the same under both methods.
D. The reported balance of depreciation expense is normally the same under both
methods.

19. As regards the series of statements below, identify the incorrect combination/s
of an essential terminology related to foreign currency transaction to its given
definition/ description.
I. Hedging and hedge accounting are one and the same.
II. A hedged item refers to an asset, liability, firm commitment, highly probable
forecast transaction or net investment in foreign operation which exposes the entity
to risk of changes in fair value or future cash flows.
III. In a fair value hedge, provided the hedge is effective, changes in the fair
value of the hedging instrument are initially recognized in OCI. The ineffective
portion of the change in the fair value of the hedging instrument
(if any) is recognized directly in P&L.
IV. In a cash flow hedge, the carrying value of the hedged item is adjusted for fair
value changes attributable to the risk being hedged, and those fair value changes
are recognized in P&L. The hedging instrument is measured at fair value, with changes
in fair value also recognized in P&L.
A. I, III and IV
B. I, II and III
C. I and IV
D. I and III

20. Statement 1: Dividend receivable, loans receivable, and lease payments receivable
denominated in a foreign currency are remeasured at the closing rate on the balance
sheet date.
Statement 2: Both a call option and a put option are purchased to make the value of
the commodity either the holder will buy or sell fixed in amount.
A. Both statements are true
B. Both statements are false
C. Statement 1 is true; Statement 2 is false
D. Statement 1 is false; Statement 2 is true

21. Hedging a forecasted transaction is a

A. Cash flow hedge
B. Fair value hedge
C. Net investment hedge
D. None of the above

22. In accordance with PAS 21 (generally accepted accounting principles), which

translation combination is appropriate for a foreign operation whose functional
currency is the U.S. dollar?
Method Treatment of Translation Adjustment
A. Temporal Other Comprehensive Income
B. Temporal Profit or Loss
C. Closing Rate Other Comprehensive Income
D. Closing Rate Profit or Loss

23. At what rates should the following balance sheet accounts in foreign statements
be translated (rather than remeasured) into pesos?
Accumulated Depreciation Equipment
A. Current Current
B. Current Average
C. Historical Current
D. Historical Historical

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24. After a purchase or sale denominated in a foreign currency occurs, what is
created on a Philippine company’s financial records as a result of the change in
the exchange rate of a foreign currency?
A. Foreign exchange option
B. Exchange gains and losses
C. Settlement date
D. Foreign currency forward contract

25. According to PAS 21 The effects of changes in foreign exchange rates, exchange
differences should be recognized either in profit or loss or in other comprehensive
income. Are the following statements about the recognition of exchange differences
in respect of foreign currency transactions reported in an entity's functional
currency true or false according to PAS 21?
I. Any exchange difference on the settlement of a monetary item should be recognized
in profit or loss.
II. Any exchange difference on the translation of a monetary item at a rate different
to that used at initial recognition should be recognized in other comprehensive
income.
A. False, False
B. False, True
C. True, False
D. True, True

END OF EXAMINATION

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