Solution To Chapter 20

Chapter 20
Problem I
In relation to the above data, the following relevant exchange rates are needed for further
analysis in relation to hedged item and hedging instrument:
Spot Rate
P40.00
P40.30
P40.20***
December 1, 20x4.
December 31, 20x4.
March 1, 20x5..
Forward Rate for

3/1/20x5 Settlement
(or Expiration)
P40.15 (*90 days)
P40.40 (**60 days)
*original 90-day forward rate on 12/1/20x4

**remaining or current forward rate on 12/31/20x4
***the forward rate at expiration or maturity is equal to spot rate as the remaining period of the forward contract is
zero.
1. Not a Hedge Accounting - Importing Transaction (Exposed Liability).

a. The journal entries to record the hedged item and hedging instrument are as follows:
Gross Method
Hedged Item Importing Transaction
(Exposed Liability)
Transaction Date
Inventory ($1,200 x P40)...
Accounts payable.
To record purchase of goods on
account using the spot rate on
2/1/1/x4.
*XD exchange dealer
48,000
Hedging Instrument Forward Contracts

( Broad Approach or Gross Position Accounting)
December 1, 20x4
Date of Inception/Hedging of 90 days Forwards
48,000
FC Receivable from XD
Pesos Payable to XD
(P40.15 x $1,200)
To record forward contract to
buy $12000 using forward rate.
48,180
48,180
If the financial statements are prepared on December 1, 20x4, the value of the forward
contract is as follows:
Balance Sheet Presentation on 12/1/20x4
P48,180
Less: Pesos payable to XD
48,180
Forward Contract (fair value).
P
0
December 31, 20x4
(Balance Sheet Date an intervening financial reporting date)
FC Transaction Loss
Account payable.
[P40.30 P48.00) x $1,200
To record a loss on the exposed
liability denominated in foreign
currency.
*FC foreign currency
360
360
FC Transaction Gain
[(P40.40 P40.15) x $1,200]
To record a gain on foreign
currency to be received from
FC dealer.
300
300
FC Receivable from XD (P40.40 x $1,200)
P48,480
Less: Pesos payable to XD (fixed at P40.15)
48,180
Forward Contract (fair value asset)
300
On March 1, 20x5 (the transaction date and the settlement date), the journal entries are:
March 1, 20x5
Settlement Date/Date of Expiration of Contract
Settlement Date
Accounts payable
FC Transaction gain.
[(P40.20 P40.30) x $1,200}..
To record a gain from 12/31/x4 to
3/1/x5 on liability denominated in
FC.
Accounts payable
Cash (refer to note below)
To record payment of accounts
payable at spot rate.
120
48,240
120
48,240
FC Transaction Loss
[(P40.40 P40.20) x $1,200]
To record a loss on foreign
FC dealer.
240
Pesos Payable from XD.

Cash.
To record payment to
exchange dealer.
48,180
Investment in FC.
To record receipt of foreign
Currency.
48,240
240
48,180
48,240
Cash. 48,240
Investment in FC.
48,240
To record conversion of US
dollars into cash for payment of
accounts payable.
Note: This entry may be ignored and instead the
Investment in FC will be outright credited in payment
of accounts payable. For succeeding illustrations the
conversion of FC to peso cash to settle items
acquired will be used.
These transactions can be summarized in the following table.

Hedged Item (Exposed Liability)
Accounts Payable
12/1/20x4
12/31/20x4
3/1/20x5
Total gain (loss)
Balance
P48,000
48,360
48,240
Transaction
gain (loss)
(P 360)
120
(P 240)
Hedging Instrument (Forward Contract)
FC Receivable
12/1/20x4
12/31/20x4
3/1/20x5
Balance
P48,180
48,480
48,240
Transaction
gain (loss)
P 300
(240)
P 60
Thus, the net effect is a P150 loss when the forward contract is used.
Net Position Accounting
The following illustrates the effects of net position accounting using the same illustration
above:
(Exposed Liability)
Transaction Date
Inventory ($1,200 x P40)...
Accounts payable.
48,000

( Net Position Accounting)
December 1, 20x4
48,000
Memorandum entry only,

No formal journal entry as the fair value of forward

2/1/1/x4.
contract is zero.
It should be noted that the accounts payable for the inventory purchase is recorded using
the spot rate on the transaction date (on December 1, 20x3).
December 31, 20x4
(Balance Sheet Date, an intervening financial reporting date)
FC Transaction Loss
Accounts payable
[P40.30 P40.00) x $1,200
currency.
360
360
Forward Contract
FC Transaction Gain
[(P40.40 P40.15) x $1,200]
FC dealer.
300
300
Forward contract (debit balance asset).
P 300
The income statement would report an exchange loss of P360 and an exchange gain of
P250.
March 1, 20x5
Settlement Date
Accounts payable
[(40.20 P40.30) x $1,200}..
FC.
120
Accounts payable (P40.20 x $1,200)

Cash (P40.20 x $1,200) or *
To record payment to exchange
dealer (XD)
48,240
120
FC Transaction Loss
Forward Contract
[(P40.40 P40.20) x $1,200]
FC dealer.
240
240
Cash..
60
Forward Contract
Net settlement received from the
dealer on expiration or maturity
date of forward contract.
*(P40.15, forward rate on the date of inception x $1,200) + cash received from the exchange dealer of P50.
48,240
Forward Contract (Asset/Liability)

12/31/x4 Gain
300
240 ..3/1/x5 Loss
3/1/x5
Net
60
60
60
b.
c.
d.
e.
b.1.
b.2.
b.3.
b.4.
b.5.
b.6.
P360 loss - [(P40.30 P40.00) x $1,200]

P300 gain - [(P40.40 P40.15) x $1,200]
P360 loss P300 gain = P60 net loss (decrease in net income)
P120 gain - [(P40.20 P40.30) x $1,200}
P240 loss - [(P40.40 P40.20) x $1,200]
c.1. P48,360 - [P40.30, spot rate/current rate on the balance sheet date x $1,200]
c.2. P48,240 [P40.20, spot rate on the date of settlement x $1,200]
d.1.
d.2.
d.3.
d.4.
e.1.
P48,180 - [P40.15, original (90-day) forward rate on the date of hedging x $1,200]
No entry required
Same amount with d.1
No entry required
Gross Method
P48,180
48,180
P
0
Net Method: Zero. No entry required.

e.2. P300 asset
Gross method

P48,480
48,180
P 300
Net Method: P300.
Forward contract (debit balance asset)
P 300
e.3. P60 debit balance asset

Gross method

Net Position
12/31/x4 Gain
3/1/x5
Net
300
60
P48,240
48,180
P 60

240 ..3/1/x5 Loss
f. P48,000 [P40, spot (current) rates on the date of transaction x $1,200]

2. Fair Value Hedge Hedging an Unrecognized Foreign Currency Firm Commitment.
Gross Method (for Net Position same with Exposed Liability)
Hedged Item (Unrecognized
Foreign Currency Firm Commitment)

December 1, 20x4
Date of Commitment (Date of Issuing the Purchase

Order)
No journal entry is required to record the firm
commitment. The forward contract is designated as a
hedge of the firm commitment to purchase inventory
on March 1, 20x5. The hedge is accounted for as a
fair value hedge.

Pesos Payable to XD
(P40.15 x $1,200)
buy $1,200 using forward rate.
48,180
48,180
December 31, 20x4

FC Transaction Loss
Firm Commitment
[P40.40 P40.15) x $1,200
To record a loss on firm
commitment using the change in
the forward rate.
300
300
FC Transaction Gain
[(P40.40 P40.15) x $1,200]
FC dealer.
300
300

Assets
Liability
FC Receivable from XD (P40.40 x $1,200).......P48,480
Firm Commitment...P 300
Less: Pesos Payable to XD(fixed at P40.15). 48,180
Forward Contract (fair value)P
300
Date of Transaction and Settlement
Firm Commitment
To record a gain on fair value of
firm commitment.
240
Inventory (P40.20 x $1,200).

Cash
To record the purchase of
inventory for $1,200 at spot rate.
48,240
Firm Commitment.
Inventory.
To remove the carrying amount of
the firm commitment from the
balance sheet6 and adjust the
initial carrying amount of the
machine that results from the firm
60
March 1, 20x5
240
48,240
60
FC Transaction Loss
[(P40.40 P40.20) x $1,200]
exchange dealer.
240

Cash.
exchange dealer.
48,180
Investment in FC.
currency.
48,240
Cash.
Investment in FC.....
dollars into cash for purchase of
inventory.
48,240
240
48,180
48,240
48,240
commitment. This treatment is an

accordance with PAS 39 par. 89b.
Firm Commitment
3/1/x5 Gain. 240
300 ..12/31/x4 Loss
60
60
3/1/x5 Net
b.
b.1.
b.2.
b.3.
b.4.
b.5.
b.6.
P300 loss - [(P40.40 P40.15) x $1,200]

P300 gain - [(P40.40 P40.15) x $1,200]
P300 loss P300 gain = P0
P240 gain - [(P40.40 P40.20) x $1,200}
P240 loss - [(P40.40 P40.20) x $1,200]
P240 loss P240 gain = P0
c. same with Exposed Liability

c.1. P48,180 - [P40.15, original (90-day) forward rate on the date of hedging x $1,200]
c.2. No entry required
c.3. Same amount with d.1
c.4. No entry required
d.
d.1. Zero, no entry required

d.2. P300 liability, [(P40.40 P40.15) x $1,200]
d.3. P60, liability
Firm Commitment
3/1/x5 Gain. 240
300 ..12/31/x4 Loss
60
3/1/x5 Net
e. Same with Exposed Liability

e.1. Net Method: Zero. No entry required.
Gross Method
e.2. P300 asset

Net Method: P300.
Gross method

e.3. P60 debit balance asset

Gross method

Net Method

12/31/x4 Gain
300
240 ..3/1/x5 Loss
3/1/x5
Net
60
P48,180
48,180
P
0
P 300
P48,480
48,180
P 300
P48,240
48,180
P 60
f. P48,240, spot rate on the date of transaction.

Inventory at spot rate on the date of transaction (P40.20 x $1,200).P48,240
g. P48,180, original (90-day) forward rate on the date of hedging
Inventory at spot rate on the date of transaction (P40.20 x $1,200).P48,240
Less: Firm Commitment account liability, 3/1/20x5.
60
Inventory at original (90-day) forward rate on the date of hedging, P40.15.P48,180
3. Cash Flow Hedge - Hedge of a Forecasted Transaction.
Hedged Item
Forecasted Transaction
Date of Forecast

December 1, 20x4
No journal entry is required to record the forecasted

transaction. The forward contract is designated as a
hedge against the exposure to increases in the dollar
rate on March 1, 20x5.
Pesos Payable to XD
(P40.15 x $1,200)
48,180
48,180
December 31, 20x4

No entry required, since it is only a forecasted
transaction not guaranteed such as firm commitment.
OCI Exchange Gain (B/S)
[(P40.40 P40.15) x $1,200]
FC dealer.
FC foreign currency; OCI - Other Comprehensive Income; B/S Balance Sheet
300
300

P48,480
48,180
Forward Contract (fair value - asset)....
P 300
On March 1, 2011 (the transaction date and the settlement date), the journal entries are:
March 1, 20x5
OCI Exchange Loss (B/S)
[(P40.40 P40.20) x $1,200]
FC dealer.
240

Cash.
exchange dealer.
48,180
Investment in FC.
48,240
240
48,180
48,240
currency.
b.
Machinery (P40.20 x $1,200)...

Cash
equipment for $1,200 at the spot
rate of P40.20
48,240
OCI Exchange Gain..

Machinery..
To remove the gain recognized in
OCI and adjust the carrying
amount if the machine that results
from the hedged transaction by
this amount. Also, to record the
basis adjustment of the carrying
value of the equipment. This entry
is recorded if PAS 39 par. 98b is
adopted.
60
48,240
Cash.
Investment in FC.
machinery.
60
3/1/x5
48,240
48,240
Other Comprehensive Income

Loss
240
300 .12/31/x4 Gain
60
60
3/1/x5
b.1.
b.2.
b.3.
b.4.
Gain or loss on hedged item, 3/1/20x4: None, no entry required

P300 gain, other comprehensive income - [(P40.40 P40.15) x $1,200]
None.
Gain or loss on hedged item, 3/1/20x4: None, no entry required for gain or loss. the
only entry is to record the purchase of machinery.
b.5. P240 loss, other comprehensive income - [(P40.40 P40.20) x $1,200] to be recorded
on March 1, 20x5. The balance of the OCI gain amounted to P60 computed as
follows:
3/1/x5

Loss
240
300 .12/31/x4 Gain
60
3/1/x5
c. Same with Exposed Liability

c.1. Net Method: Zero. No entry required.
Gross Method
c.2. P300 asset

Net Method: P300.
Gross method

c.3. P60 debit balance asset

Gross method

Net Method

12/31/x4 Gain
300
240 ..3/1/x5 Loss
P48,180
48,180
P
0
P 300
P48,480
48,180
P 300
P48,240
48,180
P 60
3/1/x5
Net
60
4. Not a Hedge Accounting Speculation.

Hedged Item - Speculation

December 1, 20x4
Pesos Payable to XD
(P40.15 x $1,200)
48,180
48,180
December 31, 20x4

FC Transaction Gain
[(P40.40 P40.15) x $1,200]
FC dealer.
300
300

P48,480
48,180
Forward Contract (fair value asset) P 300
March 1, 20x5
b.
FC Transaction Loss
FC Receivable from XD.
[(P40.40 P40.20) x $1,200]
FC dealer.
240

Cash.
exchange dealer.
48,180
Investment in FC.
currency.
48,240
Cash.
Investment in FC.
dollars into cash.
48,240
b.1. No gain or loss, since it is the date of hedging.

b.2. P300 gain - [(P40.40 P40.15) x $1,200], only hedging instrument.
240
48,180
48,240
48,240
b.3. P240 loss

c.
d.
c.1.
c.2.
c.3.
c.4.
d.1.
P48,180 - [P40.15, original (90-day) forward rate on the date of hedging x $1,200]
No entry required
Same amount with c.1
No entry required

Gross Method
P48,180
48,180
P
0
d.2. P300 asset

Net Method: P300.
Gross method

P 300
P48,480
48,180
P 300
d.3. P60 debit balance asset

Gross method

P48,240
48,180
P 60
Net Method

12/31/x4 Gain
300
240 ..3/1/x5 Loss
3/1/x5
Net
60
Problem II (Discounting the Fair Value of the Forward Contract)

1. Not a Hedge Accounting - Importing Transaction (Exposed Liability).
The journal entries to record the hedged item and hedging instrument are as follows:
(Exposed Liability)
Transaction Date
Purchases ($1,200 x P40)...
Accounts payable.
2/1/1/x4.
*XD exchange dealer
48,000

December 1, 20x4
48,000
Pesos Payable to XD
(P40.15 x $1,200)
48,180
48,180
P48,180

48,180
0
December 31, 20x4

FC Transaction Loss
360
294
Account payable.
360
FC Transaction Gain
[P40.30 P40.00) x $1,200
FC dealer.
currency.
Note: Discounted or present value for hedged item is
Gain [(P40.40 P40.15) x $1,200]............
not necessary for exposed asset or liability since spot
Less: Discount (P300 x 12% x 2/12)
Rate is in effect.
Present value of gain*.
* or P300 x 1 / (1.02); 2% represents 12%/12 = 1% x 2
months = 2%
294
P 300
____6
P294
FC Receivable from XD (P40.40 x $1,200)- P6. P48,474
48,180
P 294
March 1, 20x5
Settlement Date
Accounts payable
120
120
[(P40.20 P40.30) x $1,200}..
FC.
Note: Discounted or present value for hedged item is
not necessary for exposed asset or liability since spot
rate is in effect.
Accounts payable
Cash (refer to note below)
48,240
48,240
FC Transaction Loss
FC dealer.
234
Overall gain (P40.20 P40.15) x $1,200 ..

Less: 12/31/20x4 Gain at present value..
FC Transaction loss
Cash.
exchange dealer.
48,180
Investment in FC.
Currency.
48,240
234
P 60
__294
P234
48,180
48,240
Cash. 48,240
Investment in FC.
48,240
accounts payable.
Note: This entry may be ignored and instead the
Investment in FC will be outright credited in payment
of accounts payable. For succeeding illustrations the
conversion of FC to peso cash to settle items
acquired will be used.
a.
b.
a.1.
a.2.
a.3.
a.4.
a.5.
a.6.
b.1.
P360 loss
P294 gain
P120 gain - [(P40.20 P40.30) x $1,200}
P234 loss

Gross Method
P48,180
48,180
P
0
b.2. P294 asset

Gross method
FC Receivable from XD (P40.40 x $1,200)- P6.

P48,474
48,180
P 294
Net Method: P294.
P 294
b.3. P60 debit balance asset

Gross method

Net Method
12/31/x4 Gain
3/1/x5
Net
300
60
P48,240
48,180
P 60

240 ..3/1/x5 Loss
2. Fair Value Hedge Hedging an Unrecognized Foreign Currency Firm Commitment.


December 1, 20x4
Order)
fair value hedge.
Pesos Payable to XD
(P40.15 x $1,200)
48,180
This is computed using the change in the forward rate. These entries are as follows:
December 31, 20x4
48,180
FC Transaction Loss
294
Firm Commitment
[P40.40 P40.15) x $1,200
the forward rate.
Loss.....................
Present value of loss*.
294
FC Transaction Gain
294
[(P40.40 P40.15) x $1,200]
FC dealer.
P 300 Gain
[(P40.40 P40.15) x $1,200]
P 300
____6 Less: Discount (P300 x 12% x 2/12)..
____6
P294 Present value of gain*
P294
months = 2%
294

Assets
Liability
FC Receivable from XD (P40.40 x $1,200) - P6P48,474 Firm Commitment...P 294
Less: Pesos Payable to XD(fixed at P40.15). 48,180
Forward Contract (fair value)P
294
Firm Commitment
To record a gain on fair value of
firm commitment.
234
Overall loss (P40.20 P40.15) x $1,200 ..

Less: 12/31/20x4 Gain at present value
FC Transaction Gain..
Inventory (P40.20 x $1,200).

Cash
inventory for $1,200 at spot rate.
48,240
March 1, 20x5
234
P 60
__294
P234
48,240
FC Transaction Loss
234
exchange dealer.
Overall gain (P40.20 P40.15) x $1,200 ..
FC Transaction loss
Cash.
exchange dealer.
48,180
Investment in FC.
currency.
48,240
Cash.
Investment in FC.....
inventory.
48,240
234
P 60
__294
P234
48,180
48,240
48,240
Firm Commitment.
Inventory.
inventory that results from the
firm commitment. This treatment is
an accordance with PAS 39 par.
89b.
60
60
Firm Commitment
3/1/x5 Gain. 234
294 ..12/31/x4 Loss
60
60
3/1/x5 Net
a.
a.1. P294 loss
Foreign Currency Exchange Loss [(P40.40 P40.15) x $1,200]

Present value of loss*
P 300
____6
P294
Foreign Currency Exchange Gain [(P40.40 P40.15) x $1,200].

Present value of gain*
P 300
____6
P294
Overall loss (P40.20 P40.15) x $1,200

Less: 12/31/20x4 Gain at present value.
FC Transaction Gain.
P 60
__294
P234
Overall gain (P40.20 P40.15) x $1,200 ..

FC Transaction loss
P 60
__294
P234
a.2. P294 gain
a.3. P294 loss(a.1) P294 gain (a.2) = P0

a.4. P234 gain
a.5. P234 loss
a.6. P234 gain (a.4) P234 loss (a.5) = P0

b.
b.1. Zero, no entry required

b.2. P294 liability

Present value of loss* / Firm Commitment.
b.3. P60 - liability
P 300
____6
P294
Firm Commitment
3/1/x5 Gain. 234
294 ..12/31/x4 Loss
60
3/1/x5 Net
c.
c.1.

Gross Method
c.2. P294 asset
P48,180
48,180
P
0
Gross method

P48,474
48,180
P 294
Net Method: P294.
P 294

Gross method

Net Method
12/31/x4 Gain
3/1/x5
Net
300
60
P48,240
48,180
P 60

240 ..3/1/x5 Loss
3. Cash Flow Hedge - Hedge of a Forecasted Transaction.

Hedged Item
Date of Forecast

December 1, 20x4

Pesos Payable to XD
(P40.15 x $1,200)
48,180
48,180
December 31, 20x4

294
OCI Exchange Gain (B/S)....
294
FC dealer.
Gain [(P40.40 P40.15) x $1,200]
P 300
Less: Discount (P300 x 12% x 2/12)..
____6
P294
months = 2%
FC Receivable from XD (P40.40 x $1,200)-P6 P48,474
48,180
Forward Contract (fair value - asset).... P 294
March 1, 20x5
OCI Exchange Loss (B/S).
234
234

FC dealer.
Overall gain (P40.20 P40.15) x $1,200 ..
FC Transaction loss
Machinery (P40.20 x $1,200)...

Cash
equipment for $1,000 at the spot
rate of P40.20
48,240
OCI Exchange Gain..

Machinery..
OCI and adjust the carrying
amount if the machine that results
from the hedged transaction by
this amount. Also, to record the
basis adjustment of the carrying
value of the equipment. This entry
is recorded if PAS 39 par. 98b is
adopted.
60
a.
48,240
60

Cash.
exchange dealer.
48,180
Investment in FC.
currency.
48,240
Cash.
Investment in FC.
machinery.
48,240
3/1/x5
P 60
__294
P234
48,180
48,240
48,240

Loss
234
294 .12/31/x4 Gain
60
60
3/1/x5
a.1. Gain or loss on hedged item, 3/1/20x4: None, no entry required.

a.2. P294 gain, other comprehensive income
P 300
____6
P294
a.3. None
a.4. Gain or loss on hedged item, 3/1/20x4: None, no entry required for gain or loss. The
only entry is to record the purchase of machinery.
a.4. P234 gain
Overall loss (P40.20 P40.15) x $1,200

Less: 12/31/20x4 Gain at present value.
P 60
__294
P234
a.5. P234 loss, other comprehensive income {[(P40.40 P40.20) x $1,200] P6} to be
recorded on March 1, 20x5. The balance of the OCI gain amounted to P60
computed as follows:
3/1/x5
b.

Loss
234
294 .12/31/x4 Gain
60
3/1/x5
b.1.

Gross Method
P48,180
48,180
P
0
b.2. P294 asset

Gross method

P48,474
48,180
P 294
Net Method: P294.
b.3. P60 debit balance asset

Gross method

Net Method
12/31/x4 Gain
3/1/x5
Net
300
60
P 294
P48,240
48,180
P 60

240 ..3/1/x5 Loss
4. Not a Hedge Accounting Speculation.

Hedged Item - Speculation

December 1, 20x4
Pesos Payable to XD
(P40.15 x $1,200)
48,180
48,180
December 31, 20x4

294
FC Transaction Gain
294
FC dealer.
Gain [(P40.40 P40.15) x $1,200]
P 300
Less: Discount (P300 x 12% x 2/12)..
____6
P294
months = 2%
FC Receivable from XD (P40.40 x $1,200)-P6 P48,474
48,180
Forward Contract (fair value asset) P 294
March 1, 20x5
FC Transaction Loss
234
FC dealer.
Overall gain (P40.20 P40.15) x $1,200 ..
FC Transaction loss
a.

Cash.
exchange dealer.
48,180
Investment in FC.
currency.
40,200
Cash.
Investment in FC.
dollars into cash.
48,240
a.1. P294 gain

P 300
____6
P294
Overall gain (P40.20 P40.15) x $1,200 ..

FC Transaction loss
P 60
__294
P234
a.3. P294 gain.

a.5. P234 loss other comprehensive income
b.
b.1. Zero, no entry required

b.2. P294 liability

Present value of loss* / Firm Commitment.
b.3. P60 - liability
P 300
____6
P294
Firm Commitment
3/1/x5 Gain. 234
294 ..12/31/x4 Loss
60
3/1/x5 Net
c.
c.1.

Gross Method
P48,180
48,180
P
0
234
P 60
__294
P234
48,180
40,200
48,240
c.2. P294 asset

Gross method

P48,474
48,180
P 294
Net Method: P294.
P 294

Gross method

Net Method
12/31/x4 Gain
3/1/x5
Net
300
60
P48,240
48,180
P 60

240 ..3/1/x5 Loss
Problem III
The following relevant exchange rates are needed for further analysis in relation to hedged item
and hedging instrument:
November 1, 20x4.
December 31, 20x4.
March 1, 20x5
August 1, 20x5..
Spot Rate
P40.60
P40.75
P40.70
P41.55****
Forward Rate for

8/1/20x5 Settlement
(or Expiration)
P41.25 (*270 days)
P41.00 (**210 days)
P40.95 (***150 days)

***remaining or current forward rate on 3/1/20x5
zero.

November 1, 20x4
Order)
fair value hedge.
Pesos Payable to XD
(P41.25 x $1,200)
49,500
49,500
December 31, 20x4

Firm Commitment .
FC Transaction Gain...
[P41.25 P41.00) x $1,200
300
300
FC Transaction Loss..
(P41.25 P41.00) x $1,200]
300
300

the forward rate.

FC dealer.
Assets
Firm Commitment...P 300
Liability
Pesos payable to XD (fixed at P41.25)..P 49,500
Less: FC Receivable from XD (at spot rate). 49,200
Forward Contract (fair value).P
300
On March 1, 20x5 (the transaction date), the journal entries are:

Transaction Date (Exposed Liability)
Inventory (P40.70 x $1,200).
Accounts payable.
(P40.70 x $1,200)
inventory for $1,200 at spot rate
and recognize accounts payable.
48,840
Inventory
Firm Commitment ..
inventory that results from the firm
commitment. This treatment is an
accordance with PAS 39 par. 89b.
300
March 1, 20x5
48,840
300
Firm Commitment
12/31/x4 Gain.. 300
3 / 1/x5
300
300
August 1, 20x5
Settlement Date
FC Transaction Loss
Accounts payable.
[(P41.55 P40.70) x $1,200}..
To record a loss from 3/1/x5 to
FC.
Accounts payable
Cash.
Problem IV
1,020
49,860
1,020
49,860

[(P41.55 P41.00) x $1,200]
FC dealer.
660

Cash.
exchange dealer.
49,500
Investment in FC.
currency.
49,860
Cash.
Investment in FC.
accounts payable.
49,860
660
49,500
49,860
49,860
The following relevant exchange rates are needed for further analysis in relation to hedged item
and hedging instrument:
December 1, 20x4.
December 31, 20x4.
March 1, 20x5..
Spot Rate
P40.00
P40.30
P40.20***
Forward Rate for

3/1/20x5 Settlement
(or Expiration)
P40.15 (*90 days)
P40.40 (**60 days)

zero.
Hedged Item
Date of Forecast

December 1, 20x4

Pesos Payable to XD
(P40.15 x $1,200)
48,180
48,180
December 31, 20x4

OCI Exchange Gain (B/S)
[(P40.40 P40.15) x $1,200]
FC dealer.
FC foreign currency; OCI - Other Comprehensive Income; B/S Balance Sheet
300
300
Notice that unlike the fair value hedge, there is no offsetting firm commitment entry since this is a
forecasted transaction. The exchange gain or loss is reported in comprehensive income and will
affect the income statement when the inventory is eventually sold. On the balance sheet, the
forward contract is reported as an asset at its fair value of P300, and the offsetting amount is
reported in other comprehensive income (as a gain).
P48,480
48,180
Fair value of Forward Contract, 12/1/20x4.. P 300
On March 1, 2011 (the transaction date and the settlement date), the journal entries are:
March 1, 20x5
OCI Exchange Loss (B/S)
[(P40.40 P40.20) x $1,200]
240
240

FC dealer.
Inventory (P40.20 x $1,200)...

Cash
merchandise for $1,200 at the
spot rate of P40.20
48,240
48,240

Cash.
exchange dealer.
48,180
Investment in FC.
currency.
48,240
Cash.
Investment in FC.
machinery.
48,240
48,180
48,240
48,240
Suppose that in April 1, 20x5, the inventory is sold for P54,000 cash.
The entries to record the sale and to reclassify the amounts from Other Comprehensive Income
(a P50 gain, including P250 gain on December 31, 20x4, plus the P200 loss on March 1, 20x5) into
earnings are as follows:
April 1, 20x5
Date of Transaction (Sale)

Cash...
Sales
To record the sale of merchandise.
54,000
Cost of goods sold

Inventory, at cost
To record cost of sales.
48,240
OCI Exchange Loss..

Cost of goods sold.......................
OCI and release the OCI to profit
or loss. This entry is recorded in
accordance with PAS 39 par. 98a
is adopted.
60
54,000
48,240
60
3/1/x5

Loss
240
300 .12/31/x4 Gain
60
60
3/1/x5
Problem V
1. Indirect exchange rates for Australian dollars were:
December 1, 20x4: FC70,000 / P42,000 = 1.667 [P1 equals FC 1.667]
December 31, 20x4: FC70,000 / P41,700 = 1.679 [P1 equals FC 1.679]
2.
The balance in the account Foreign Currency Payable to Exchange Broker was
P39,900 at December 31, 20X5, computed as:
P39,900 = FC 70,000 x P.57 Dec. 31 forward rate
3.
The direct exchange rate for the 60-day forward contract for the 70,000 foreign
currency (FC) was FC 1 = P.58. This is the result of the following computation:
(P40,600 / FC 70,000) = P.58.
4.
P40,600 is the amount of Pesos Receivable from Exchange Broker in the adjusted
trial balance at December 31, 20x4. The balance in this account does not change
because it is denominated in Philippine peso.
5.
Indirect spot exchange rates for FC2 were:

October 2: FC2 400,000 / P80,000 = 5 [P1 equals FC2 5]
December 31: FC2 400,000 / P80,800 = 4.950 [P1 equals FC2 4.950]
Or, 4.950 = FC2 1 / P.2020
6.
The Pesos Payable to Exchange Broker was P82,000 in both the adjusted and
unadjusted trial balances. The entry to record the forward contract for the 400,000
FC2 on October 2, 20x4, appears below. Note that the account Pesos Payable to
Exchange Broker is denominated in pesos and does not change as a result of
exchange rate changes.
Foreign Currency Receivable from
Exchange Broker (FC2)
Pesos Payable to Exchange Broker (P)
82,000
82,000
7.
The direct exchange rate for the 120-day forward contract in FC2 on October 2,
20x4, was P.205. This amount is determined in the following manner: P82,000 / FC2
400,000 = P.205. The P82,000 is the amount of the pesos payable to exchange
broker. This amount is computed by using the forward rate.
8.
The accounts payable balance was P80,800 at December 31, 20x4.

P80,800 = FC2 400,000 x P.2020 Dec. 31 spot rate
The entries to support the computations for are presented below:
1. Transactions with Foreign Company 1 (FC1)
December 1, 20x4
Accounts Receivable (FC1)
Sales
P42,000 = FC1 70,000 x (P1/FC1 1.667)
Pesos Receivable from Exchange Broker
Foreign Currency Payable to
P40,600 = FC1 70,000 x P.58 Dec. 1 forward rate,
and also peso amount stated in problem information
(P.58 = P40,600 / FC1 70,000)
December 31, 20x4
Foreign Currency Transaction Loss
Accounts Receivable (FC1)
P300 = change in accounts receivable (FC1) as noted
in problem information.
Foreign Currency Payable to
Exchange Broker
Foreign Currency Transaction Gain
P39,900 = FC1 70,000 x P.57 Dec. 31 forward rate
42,000
42,000
40,600
40,600
300
700
300
700
- 40,600 = FC1 70,000 x P.58 Dec. 1 forward rate

P 700 = FC1 70,000 x (P.57 - P.58)
2.
Transactions with Foreign Company 2 (FC2)

October 2, 20x4
Equipment
Accounts Payable (FC2)
P80,000 = FC2 400,000 x P.20
80,000

Pesos Payable to Exchange Broker
P82,000 = FC2 400,000 x P.2050, and the
P82,000 is presented in the problem
for the foreign currency receivable.
82,000
December 31, 20x4

Accounts Payable (FC2)
P80,800 = FC2 400,000 x P.202 Dec. 31 spot rate
- 80,000 = FC2 400,000 x P.200 October 2 spot rate
P 800 = FC2 400,000 x (P.202 - P.200)
Exchange Broker
P81,000 = FC2 400,000 x P.2025 Dec. 31 forward rate
- 82,000 = FC2 400,000 x P.2050 Oct. 2 forward rate
P 1,000 = FC2 400,000 x (P.2025 - P.2050)
80,000
82,000
800
800
1,000
1,000
Problem VI
Based on the data given, the following situations can be derived:
12/ 1/20x4
12/31/20x4
3/ 1/20x5
Market or
Spot Rate
P1.20
P1.28
P1.27
Strike price
(exercise price
or option
price)
P1.20
P1.20
P1.20
Foreign
Currency
Option
Situation
At-the-money
In-the-money
In-the-money
Element
Existing
TV
TV & IV
IV***
Time
Value**
P360
P240
P 0
TV time value; IV intrinsic value.

* (Market price less option price) x foreign currencies
** Fair value of option intrinsic value
***time already expired, so need to determine time value unless It is a residual amount.
Intrinsic
Value*
P
0
P4,800
P4,200
(Exposed Liability)
Transaction Date
Inventory (60,000 FC x P1.2)..
Accounts payable.
72,000
Hedging Instrument Option Contracts

December 1, 20x4
72,000
Investment in FC Call Option..

Cash..
360
360

12/1/1/x4.
To record purchase of call

option.
December 31, 20x4

FC Transaction Loss..
Account payable
[P1.28 P1.20) x 60,000 FC
currency.
4,800
4,800
Investment in FC Call Option

(P5,040 P360 = P4,680)
To record a gain on call option.
4,680
4,680
March 1, 20x5
Settlement Date
Accounts payable.
[(P1.28 P1.27) x 60,000 FC..
FC.
600
Accounts payable
Cash [(P1.20 x 60,000 FC) +
P4,200, proceeds from call
option]..
76,200
600
76,200
FC Transaction Loss.
(P5,040 P4,200)
To record a loss on call option
840
Cash.
To record the derecognition of
call option on realization.
4,200
840
4,200
Problem VII
The following table summarizes the succeeding journal entries in relation to hedged item and
hedging instrument:
Date
11/20/x4
12/20/x4
Firm Commitment
Total
Spot
Fair
Change in
Rate
value
Fair Value
P0.20
P0.21
(P 600)*
(P 600)**
Call Option
(CO)Premium
per FC
P.002
P.010***
Call Option Contract

(CO Premium x FCs)
Fair Value of Call
Option
P120
P600
Change in
Fair Value
P480
* $12,000 $12,600 = $(600).

**(P0.21 P0.20, spot) x 60,000 FC.
***The premium on 12/20 for an option that expires on that date is equal to the options intrinsic value. Given the spot
rate on 12/20 of P.21, a call option with a strike price of P.20 has an intrinsic value of P.01 per mark.
Based on the above data, the following situations can be derived:
11/20/20x4
12/20/20x4
Market or
Spot Rate
P0.20
P0.21
Strike price
(exercise price
or option
price)
P0.20
P0.20
Foreign
Currency
Option
Situation
At-the-money
In-the-money

Element
Existing
TV
IV
Time
Value**
P120
P 0
Intrinsic
Value*
P 0
P 600
(Firm Commitment)
November 20, 20x4
Date of Commitment
There is no entry to record the sales agreement

because it is an executory contract.

FC Loss on Firm Commitment
Firm Commitment
[(P.21 P0.20) x 60,000 FC]
To record loss on firm commitment
based on spot rate.
600
Equipment..
Cash [(P0.20 x 60,000 FC) +
P600, proceeds from call
option]..
To record purchase of equipment
at spot rate (P.21 x 60,000 FC)
12,600
Firm Commitment
Equipment.
To derecognized firm
commitment and adjust the
carrying amount of equipment.
600

Cash.
option.
120
120
December 20, 20x4

600
12,600

(P600 P480 = P100)
120
Cash..
600
120
600
600
Problem VIII
The relevant exchange rates and option premiums are as follows:
11/20/20x4
P0.20
0.20
P480
Spot rate (market price)

Strike price (exercise price)
Fair value of call option
N/A not applicable
12/20/20x4
P0.18
0.20
N/A
The following table summarizes the succeeding journal entries in relation to hedged item and
hedging instrument:
Date
11/20/x4
12/31/x4
Firm Commitment
Total
Spot
Fair
Change in
Rate
value
Fair Value
P0.20
P0.18
P1,200*
P1,200**
Call Option
(CO)Premium
per FC
P.002
P.000***
Call Option Contract

(CO Premium x FCs)
Fair Value of Call
Option
P120
P 0
Change in
Fair Value
(P120)
* P12,000 P10,800 = P1,200

**(P.20 P.18) x 60,000 FC
***The premium on 12/20 for an option that expires on that date is equal to the options intrinsic value. Given the spot
rate on 12/20 of P.18, a call option with a strike price of P.20 has no intrinsic value the premium on 12/20 is P.000.
Based on the above data, the following situations can be derived:
11/20/20x4
12/20/20x4
Market or
Spot Rate
P0.20
P0.18
Strike price
(exercise price
or option
price)
P0.20
P0.20
Foreign
Currency
Option
Situation
In-the-money
In-the-money

** None since the option price is greater than the market price.
Element
Existing
TV & IV
IV
Time
Value**
P120
P 0
Intrinsic
Value*
P 0
P 0
(Firm Commitment)
November 20, 20x4
Date of Commitment
There is no entry to record the sales agreement

because it is an executory contract.

Firm Commitment
FC Gain on Firm Commitment
[(P0.20 P0.18) x 60,000 FC]
To record loss on firm commitment
based on spot rate.
1,200
Equipment..
Cash [(P0.20 x 60,000 FC) +
P0, no proceeds from call
option]..
To record purchase of equipment
at spot rate (P.21 x 50,000 FC)
12,000
Equipment.
Firm Commitment.
To derecognized firm
commitment and adjust the
carrying amount of equipment.

Cash.
option.
120
120
December 20, 20x4

1,200
1,200
12,000
(P120 P0 = P120)
120
120
No entry required since the

Investment in call option has no
value.
1,200
Problem IX
Based on the data given in the problem, the following situations can be derived:
1/ 1/20x4
6/30/20x4
12/31/20x4
Market or
Spot Rate
P1.15
P1.18
P1.17
Strike price
(exercise price
or option
price)
P1.14
P1.14
P1.14
Foreign
Currency
Option
Situation
In-the-money
In-the-money
In-the-money
Element
Existing
TV & IV
TV & IV
IV***
Time
Value**
P8,400
P4,800
P
0

***time already expired, so need to determine time value unless It is a residual amount.
Intrinsic
Value*
P12,000
P48,000
P36,000
(Forecasted Transaction)
Transaction Date

December 1, 20x4


Cash..
option.
20,400
20,400
December 31, 20x4


OCI FC Transaction Gain (B/S)
[P1.18 P1.14) x 1,200,000 =
P52,800 P20,400 = P32,400]
32,400
OCI FC Transaction Gain (B/S)

FC Transaction Gain
To reclassify 80% of OCI to
earnings (720,000 /900,000) =
80% ; (80% P32,400 = P25,920)
25,920
32,400
25,920
On December 31, 20x4 (the transaction date and the settlement date), the journal entries are:
December 31, 20x4

[(P1.17 P1.14) x 1,200,000
baht = P36,000 P52,800]
To record a loss on call option
16,800
OCI FC Transaction Gain (B/S).

To record reclassify the
remaining P6,480 of FC gain
from OCI to earnings
(180,000/900,000 x P32,400).n
This entry is recorded if PAS 39
par. 98b is adopted.
6,480
Cash.
[(P1.17 P1.14) x 1,200,000 baht]
36,000
16,800
6,480
36,000
Multiple Choice Problems

1. c
Peso Value in 3 months = 3,750 + 37.50 = 3,787.50
FC Value in 3 months = 5,000 + 87.50 = 5,087.50
Fwd rate 3,787.50 5,087.50 = .745
2. e
Pound should be FCU
11/10/x6: Original forward rate on the date of hedging...P
1.64
Balance Sheet date: Remaining (current) forward rate 12/31/20x6.......
1.59
Gain on forward contract per FC.....P
.05
Multiplied by: No. of FCs.. 100,000
Gain on forward contract...P 5,000
3. a
Euro should be FCU
10/22/x6: Original forward rate on the date of hedging...P 0.45
Balance Sheet date: Remaining (current) forward rate 12/31/20x6..
0.445
Gain on forward contract per FC..P
.005
Gain on forward contract......P
500
4.
c -15,000,000 x P.0092
5.
b - 15,000,000 x P.0094
6.
b - 15,000,000 (P.0094 - P.0092)
7.
d - 15,000,000 x P.0091
8.
c - 15,000,000 (P.0091 - P.0094)
9.
a forward contract is zero on the date of hedging
10.
b since it is a gain (refer to No. 11) therefore the value of forward contract is an asset
11.
d - P4,500 - P0
12.
c
13.
c - P3,000 - P4,500
14.
b - 1,000,000 x P1.116
15.
d - 1,000,000 x P1.129
16.
a - 1,000,000 (P1.129 - P1.116)
17.
a - 1,000,000 x P1.138
18.
c - 1,000,000 (P1.138 - P1.129)
19.
d forward contract is zero on the date of hedging
20.
a
21.
b
22.
c
23.
d - (P8,000 - P6,000)
24. e there is no fair value of forward contract on the date of hedging.
25. b (100,000 FCU x P.74, the forward rate on the date of hedging), the entry would be as
follows (using the gross or broad approach):
Forward contract receivable 74,000
Pesos payable to exchange dealer.
74,000
26. d
Original value of Forward Contract Receivable-FC

Current (6/30) value of the Fwd Contract Rec-FC
Increase in value of Forward Contract Receivable
Value of Receivable, discounted at 8%, n 1
Value of receivable
100,000 x .74 = 74,000

100,000 x .75 = 75,000
1,000
1,000 - (1,000 x [.08 12]) = 993
74,000 + 993 = 74,993
or,
FC Receivable date of hedging, 6/1 20x4...P 74,000
Add: Forward contract gain P1,000 x [1/1 + (8%/12 x 1 month remaining)]..
993
Forward Contract (FC) Receivable, 6/30/20x4. P 74,993
27. d
January 1: Origininal forward rate on the date of hedging....P
0.94
March 1: Spot rate
0.93
Gain..P
0.01
Multiplied by: No. of FCs. 100,000
FC Forward Contract GainP
1,000
28. c
Hedging Instrument:
January 1: Origininal forward rate on the date of hedging....P
0.94
March 1: Spot rate
0.93
Gain..P
0.01
1,000
Hedged Item:
January 1: Spot rate....P
0.945
March 1: Spot rate
0.930
LossP 0.015
Foregin currency exchange loss.... P 1,500
Net loss.P
500
29. d
Hedged Item:
January 1: Spot rate....P
0.945
March 1: Spot rate
0.930
LossP 0.015
Foreign currency exchange loss.... P 1,500
30. c (P.1865 P.1850) gain x 100,000 FC = P150 gain
31. c using spot rate
32. c
5/1: Original forward rate (90 days)...P
.693
6/30: Current (remaining) forward rate (30 days)....
.695
Forex gain per unit........P
.002
Multiplied by: Number of foreign currencies. 500,000
Foreign exchange gain due to hedging instrument..P 1,000
Less: Discount P1,000 x 6% x 30/360 days.
5
PV of foreign exchange gain due to hedging instrumentP
995
Or, alternatively the computation of present value may also be presented as:
Foreign exchange gain...P 1,000
Divided by: [1% + (6%/12 x 1 month = equivalent to 30 days)].. 1.005
PV of foreign exchange gain due to hedging instrument.P 995
Note: Since, the discount rate is given it is assumed that all times present value should be
computed. Present value for hedged item is not necessary for exposed asset or liability since
spot rate is in effect. Unlike, the other types of hedging wherein, forward rates is used to
determine the gain or loss on the hedged item
33. c
Foreign exchange loss due to Hedged Item:
5/1: Spot rateP
.687
6/30: Spot rate

.691
Forex loss per foreign currency...P
.04
Multiplied by: Number of foreign currencies.. 500,000
Foreign exchange loss due to hedged item ..P
2,000
PV of foreign exchange gain due to hedging instrument
(forward contract refer to No. 32)..........
995
Net Income effect decrease ........ P 1,005
34. d
5/1: Original forward rate (90 days)...P
.693
8/1: Spot rate
.696
Forex gain per currency .P
.003
Multiplied by: Number of foreign currencies.. 500,000
Total Foreign Exchange gain due to hedging instrument
(forward contract)............................................................................. .....P 1,500
Less: 6/30 cut-off - PV of foreign exchange gain due to hedging
instrument (forward contract refer to No. 32).....
995
August 1 - Foreign exchange gain due to hedging instrument
(forward contract).P
505
35. e
Hedging Instrument:
Origininal forward rate on the date of hedging.P 0.105
Balance Sheet date: Remaining (current) forward rate 12/3/1/20x4
0.095
LossP 0.010
Multiplied by: No. of FCs.
50,000
FC Forward Contract Loss..P
500
Multiplied by: PV factor...
.98,03
Forward contract a liability account (since it is a loss)P 490.15
36. b (forward rate > spot rate premium) sellers point of view considered as premium
revenue since it was sold at a higher rate.
37. b
November 1, 20x4:
Exchange Broker (FC)
12,600
Pesos Payable to Exchange Broker
12,600
Signed 90-day forward exchange contract
to purchase 100,000 FC:
P12,600 = 100,000 FC x P.126 forward rate
38. c
December 31, 20x4
Exchange Broker (FC)
300
Foreign Currency Transaction Gain
300
Revalue foreign currency receivable to
fair value:
P300 = 100,000 FC x (P.129 - P.126)
39. b
January 30, 20x5
Pesos Payable to Exchange Broker (Pesos)
12,600
Cash
12,600
Deliver pesos to exchange broker in
accordance with forward exchange contract:
P12,600 = 100,000 FC x P.126 contract rate
40. b
January 30, 20x5
Pesos Payable to Exchange Broker (Pesos)
12,600
Cash
12,600
Deliver pesos to exchange broker in
accordance with forward exchange contract:
P12,600 = 100,000 FC x P.126, the 90-day forward rate
41. a
January 30, 20x5
200
Foreign Currency Receivable from Exchange Broker (FC)
200
Adjust foreign currency receivable to
current peso equivalent:
P12,700 = 100,000 FC x P.127 Jan. 30 spot rate
- 12,900 = 100,000 FC x P.129 Dec. 31 forward rate
P 200 = 100,000 FC x (P.127 - P.129)
Foreign Currency Units
12,700
Foreign Currency Receivable from Exchange Broker
12,700
Receive 100,000 FC from exchange broker:
P12,700 = 100,000 FC x P.127 spot rate
42. d
PAS 32 and 39 (PFRS 9) requires the FCU payable be recorded at the forward rate on the
date of hedging.
Letter (d) is the required entry under the old practice wherein the FCU payable are recorded
using the spot rate on the date of hedging.
43. b
Receivable balance: P319,500 (spot rate on the balance sheet date, P.71 x 450,000 FCU)
Gain or loss: P9,000 loss [(P.73 P.71) x 450,000 FCU]
44. c (forward rate > spot rate= premium) buyers point of view considered as premium
expense since it was purchase at a higher rate plus a loss on firm commitment (i.e., P1.21
P1.20)
45. e
Firm Commitment:
1.64
Balance Sheet date: Remaining (current) forward rate 12/31/206.
1.59
Loss on Forward Contract per FC....P
.05
Loss on forward contract.P 5,000
46. e
Firm Commitment:
1.64
Balance Sheet date: Remaining (current) forward rate 12/31/20x6.......
1.59
Gain on forward contract per FC.....P
.05
Gain on forward contract...P 5,000
47. b
Firm Commitment:
10/22/x6: Original forward rate on the date of hedging...P 0.45
Balance Sheet date: Remaining (current) forward rate 12/31/20x6..
0.445
Gain on forward contract per FC..P
.005
Gain on forward contract......P

48. a
December 1, 20x6: Spot rate P1.64 x 100,000.................
Less: Firm Commitment liability (credit balance)
8/3/20x6: Original (120-day) forward rate.P
12/1/20x6: Remaining (60-day) forward rate
Loss on Firm Commitment....P
Multiplied by: No. of FCs
Value of machine...........................
500
P164,000
1.60
1.64
0.04
100,000
4,000
P160,000
49. c - refer to No. 48 (Note: There is no more commitment after the date of transaction which is
12/1/20x6)
50. c December 9, 20x6: Spot rate P2.45 x 100,000
P245,000
Add: Firm Commitment asset (debit balance)
2.44
2.46
Gain on Firm Commitment..P
0.02
Multiplied by: No. of FCs 100,000
2,000
Value of sales, 1/31/20x6...............
P243,000
51. b - refer to No. 50 for computation ((Note: There is no more commitment after the date of
transaction which is 12/9/20x6)
52. c - Forward contracts always have a value of P0 at the date they are established
53. a
54. a - P10,000 - P0
55. c - The forward contract gain or loss is offset by the loss or gain on the sales commitment
56. b
57. c - P25,000 - P10,000
59. a - (50,000,000 x P.0088) + [50,000,000 (P.0092 - P.0087)]
60. b - Forward contracts always have a value of P0 at the date they are established
61. c
62. d - P7,500 - P0
64. d
65. b - P2,500 + P7,500
66. a - The forward contract gain or loss is offset by the loss or gain on the sales commitment
67. b - (2,500,000 x P1.129) + [2,500,000 (P1.139 - P1.138)]
68. b
January 31: Spot rate P1.59 x 100,000.............
P159,000
Add: Firm Commitment asset (debit balance)
1.65
1.60
Gain on Firm Commitment..P
0.05
100,000
5,000
Value of merchandise, 1/31/20x4
P164,000
The entry would be as follows on 1/31/20x4:
Inventory 164,000
Firm Commitment.
5,000
Cash (P1.59 x 100,000).
159,000
69. d the original (30-day) forward rate on the date of hedging. Thus,
Hedged Item (Commitment):
Foreign currency exchange loss [(P.28 P.25) x 100,000 FC]. 3,000
Firm Commitment.
3,000
Inventory (P.28 x 100,000 FC)28,000
Cash..
28,000
Firm Commitment 3,000
Inventory..
3,000
Therefore, inventory should be valued at P25,000 (P28,000 P3,000)

70. e the inventory should be valued based on the spot rate on the date of transaction since it
was assumed that the firm commitment account will be closed through earnings account.
Normally, the firm commitment should be closed to the asset account in accordance with
PAS 39 par.98b.
71. e - the accounts payable should be valued based on the spot rate on the date of
transaction.
72. c
Firm Commitment:
Original forward rate on the date of hedging.P
.58
Balance Sheet date: Remaining (current) forward rate 6/30/20x4.
.56
Loss on Firm Commitment per FC..P
.02
Loss on firm commitment.P 4,000
Loss on commitment (debit) results in a credit to Firm Commitment, thus:
Loss on Firm Commitment 4,000
Firm Commitment (a liability account)..
4,000
73. b
Fwd value 4/1
Fwd value 6/30
Decrease in Fair Value of Payable
PV of change: 4,000 1.01
[n 1; i (.12 12) = .01]
200,000 x 0.58
200,000 x 0.56
116,000
112,000
4,000
3,960
Current value of fwd contract = 116,000 - 3,960 = 112,040

or,
FC payable date of hedging, 4/1 20x4.P 116,000
Less: Forward contract gain [P4,000 x 1/1 + (8%/12 x 1 month remaining)]...
3,960
FC payable date of hedging, 6/30/ 20x4.P 112,040
74. c (P2.17 P2.14) x 200,000 FCs = P6,000 loss. No need to compute present value because
the contract already expired.
75. b
Notional amount
Forward rate for remaining time
Initial forward rate
Change in original forward rate
Fair value of fwd contract in future pesos:
Original forward value
Current forward value
(Gain) Loss in forward rate
Current present value
PV of (P150) n=1; i=0.667%
PV of (P225) n=0; no discounting
Prior present value
Change in present value
76. d
Notional amount
Forward rate for remaining time
Initial forward rate
Change in original forward rate
Fair value of fwd contract in future dollars:
Original forward value
Current forward value
(Gain) Loss in forward rate
Current present value
PV of (P150) n=1; i=0.667%
PV of (P225) n=0; no discounting
Prior present value
Change in present value
1-Aug
15,000
0.690
30-Aug
15,000
0.680
0.690
(0.010)
30-Sep
15,000
0.675
0.690
(0.015)
10,350
10,200
(150)
10,350
10,125
(225)
(149)
0
(149)
1-Aug
15,000
0.690
(225)
149
(76)
30-Aug
15,000
0.680
0.690
(0.010)
30-Sep
15,000
0.675
0.690
(0.015)
10,350
10,200
(150)
10,350
10,125
(225)
(149)
0
(149)
(225)
149
(76)
77. c - Forward contracts always have a value of P0 at the date they are established
78. a
79. d - [(P600) - P0]
80. b
81. c - [P300 - (P600)]
82. b - Forward contracts always have a value of P0 at the date they are established
83. a
84. c - [(P1,950) - P0]
85. c
86. b - [P635 - (P1,905)]
87. c
Cost of equipment..P 211,000
Less: Fair value of the equipment 199,000
Impairment loss.P 12,000
88. a (P17,500 P13,200) reclassified to earnings
89. e
Original forward rate on the date of hedgingP
1.64
Balance Sheet date: Remaining (current) forward rate Dec. 31, 20x6
1.59
Loss..P
0.05
Multiplied by: No. of FCs 100,000
FC Forward Contract Loss..P
5,000
90. a
P400 = 10,000 foreign currency units x (P.82 - P.78). The loss is calculated using only forward
rates. On December 31, 20x4, the loss is the difference between the 90-day future rate on
November 1 (P.78) and the 30-day forward rate on December 31 (P.82).
91. b - speculation (gain or loss income statement)
0.033
Balance Sheet date: Remaining (current) forward rate Dec. 31, 20x4
0.036
Loss..P
0.003
FC Forward Contract LossP
300
92. b - (220,000 FCUs)x (P0.68) = P149,600
93. B - (220,000 FCUs)x(P.68 - P.70) = P4,400 loss
(To adjust the contract to the 30 day futures amount)
94. b
Manage an exposed position:
Value the forward exchange contract (FEC) at its fair value, measured by changes in the
forward exchange rate (FER). Note that the question asks only for the effect on income from
the forward contract transaction; thus, any effect on income from the foreign currency
denominated account payable is not included in the answer.
FER, 12/12/x4 P.90
FER, 12/31/x4 P.93
AJE:
Forward Contact Receivable
Foreign Exchange Gain
Revalue forward contract:
P3,000 = 100,000 FCU x (P.93 - P.90) change in forward rates
Foreign Exchange Loss
Account Payable
Revalue foreign currency payable:
P10,000 = 100,000 FCU x (P.98 - P.88) change in spot rates
95. b
Hedge of a Firm Commitment:
Value FEC based on changes in forward rate.
AJE:
Forward Contract Receivable
Revalue forward contract, using the forward rates.
Foreign Exchange Loss
Firm Commitment
Recognize loss on firm commitment.
3,000
10,000
3,000
3,000
3,000
10,000
3,000
3,000
Again, note that the question asks only about the effect on income from the forward
contract, not the underlying firm commitment portion of the transaction
96. b
Speculation:
Value forward exchange contract at fair value based on changes in the forward rate
AJE:
Forward Contract Receivable
3,000
3,000
97. b
Call Option:
P29.80 (Market price/Spot Price) > P27.90 (Option/Strike Price)..P1.90 in-the-money
Put Option
P14.25 (Market price/Spot Price) > P16.40 (Option/Strike Price).. 2.15 in-the-money
Intrinsic Value.. P4.05
98. d
January 1, 20x6
(the inception date of the 1-yr. put FX option period)
FX Contract ValueOption ............................................................
8,000
Cash ...........................................................................................
To record cost of put option acquired.
Note: P1.40, OP > P1.368, Market/spot rate In-the-money (put option)

March 31, 20x6
(an intervening financial reporting date)
30,000
FX Gain (P30,000 300,000 FCUs/1,000,000 FCUs).............
OCIFX Gain (P30,000 700,000 FCUs/1,000,000 FCUs)
To adjust options carrying value to its fair
value of P106,000 (a given amount). P106,000 P6,000 = P100,000)
8,000
9,000
21,000
99. a
Note: P1.40, OP > P1.368, Market/spot rate Out-of-the-money (call option). Time value
element only, therefore any gain or loss is charged to profit and loss or current earnings, not
OCI.
100. d
January 1, 20x6
(the inception date of the 1-yr. put FX option period)
16,000
Cash ...........................................................................................
To record cost of put option acquired.
Note: P.25, OP < P.292, Market/spot rate In-the-money (Call option)

March 31, 20x6
(an intervening financial reporting date)
80,000
FX Gain (P80,000 500,000 FCUs/2,000,000 FCUs) x 50%..
OCIFX Gain (P80,000 P10,000).................................
To adjust options carrying value to its fair
value of P106,000 (a given amount). P96,000 P16,000 = P80,000)
16,000
10,000
70,000
Items 101 through 107 Solution Guide Table:

December 16
Spot rate (Market Price) ...
P
.16
Strike price (Option Price)
P
.16
Notional amount (in Bolivar)
1,000,000
Intrinsic value (if Market
is < Option (Strike)*........
P
0
Time value** ........................
P 4,000
Fair (Total) value of Option.
P 4,000
December 31
P
.15
P
.16
1,000,000
February 14
P .147
.16
1,000,000
P 10,000
3,300
P 13,300
P 13,000
0
P 13,000
* (Option Price Market Price ) x notional amount

** Fair value of option less Intrinsic Value
101. d - The notional amount is the total face amount of the asset or liability that underlies the
derivative contract. A notional amount may be expressed in the number of currency units,
shares, bushels, pounds or other units specified in the financial instrument. Choices letter (a),
(b), and (c) are all fair value of the option contract at different dates.
102. c
On December 31, 20x4:
Fair value of Call Option..P 13,300
Intrinsic Value: ( P.16 Option price less P.15 market price,
lower if put option) x 1,000,000 bolivar. 10,000
Time ValueP 3,300
103. c (P3,300 P4,000 = P700 loss); refer to the solution guide table for further analysis.
104. a (P10,000 P0 = P10,000 gain); refer to the solution guide table for further analysis.
105. b
Hedging Instrument/Hedging Transaction/Option Contract:
Inception date: Fair value of call option.............................P 4,000
Balance sheet date: Fair value of call option........ 13,300
Foreign exchange gain............P 9,300
106. c
Foreign Currency Transaction (Hedged Item):
12/16/20x4: Spot rateP
.16
12/31/20x4: Spot rate...
.15
Forex loss per unit. P
.01
Multiplied by: Number of foreign currencies 1,000,000
Foreign exchange loss..........................................P 10,000
Inception date: Fair value of call option..............................P
4,000
Balance sheet date: Fair value of call option..
13,300
Foreign exchange gain...P
9,300
Net foreign exchange loss..P
700
107. c
Foreign Currency Transaction (Hedged Item):
12/31/20x4: Spot rate..P
2/14/20x5: Spot rate..
.150
.147
Forex loss per unitP

.003
Multiplied by: Number of foreign currencies.. 1,000,000
Foreign exchange loss............................................P
3,000
Balance sheet date (12/31/x4): Fair value of call option...............P 13,300
Expiration date (2/14/x5): Fair value of call option.... 13,000
Foreign exchange loss..P
300
Total foreign exchange loss..P
3,300
108. c
12/1/20x4:Spot rateP
.92
12/31/20x4:Spot rate.
.93
Foreign currency gain. P
.01
x: No. of foreign currencies. 1,000,000
Foreign currency gain due to hedged item/commitment...P 10,000
Less: Discount P10,000 x 12% x 2/12 (January and February).........
200
PV of foreign exchange gain due to hedged item/commitment.... P 9,800*
Or, alternatively the computation of present value may also be presented as:
Foreign exchange gain equity..P 10,000
Divided by: [100% + (12%/12 x 2 months remaining)]..
1.02
PV of foreign exchange gain due to hedged item/commitment.P 9,803*
*P3 discrepancy due to rounding-off.
109. c
12/1/20x4: Fair value of Option (P10,000 x P.009)..P 9,000
12/31/20x4: Fair value of Option (P10,000 x P.006) 6,000
Foreign currency loss on hedging transaction (option contract)P 3,000
110. b refer to No. 101 for computation. It is an asset since the counterpart entry is a gain. Thus,
the entry should be:
Firm Commitment.9, 803
Foreign Currency Gain on Hedged Item/Commitment.
9,803
111. c
PV of foreign exchange gain due to hedged item/commitment

(refer to No. 70). P 9,803
Foreign currency loss on hedging transaction (option contract)
refer to no. 71) ( 3,000)
Impact on net income increase P 6,803
112. b
Sales (3/1/20x5 spot rate: P.90 x FC 1,000,000)
P900,000
Foreign exchange loss on hedged item/commitment, 3/31/20x5:
12/1/20x4 Spot rate..P
.92
3/31/20x5 Spot rate...
.90
Foreign currency loss. P
.02
x: No. of foreign currencies 1,000,000
Foreign currency loss for the entire hedged
item/commitment P
20,000
Add back: PV of foreign gain due to hedged
item/commitment.
9,803 ( 29,803)
Adjustment: Firm Commitment Account balance (credit balance)

since the P20,000 is a foreign currency loss then the firm
commitment account is a credit balance
Foreign currency gain on hedging transaction (option contract)
12/31/20x4 (inception date): Fair value of option
(P0.006 x FC 1,000,000) P
6,000
3/1/20x4 (expiration date) : Fair value of option
(P0.020 x FC 1,000,000).
20,000
Impact on Net Income.
20,000
14,000
P904,197
113. d (150,000 FC x P.05 premium = P7,500)

114. a (150,000 FC x P.04 premium = P6,000)
115. b (150,000 FC x P.03 premium = P4,500)
116. c (150,000 FC x P.97 = P145,500)
117. a
Hedged Item/Commitment:
3/01/20x3: Spot rate..P
.095
12/31/20x3: Spot rate..
.094
Foreign currency loss per unit. P
.001
x: No. of foreign currencies... 2,000,000
Foreign currency loss due to hedged item/commitment..P
2,000
x: PV factor of an annuity of P1 @ for 12 periods..
.9803
PV of foreign exchange loss due to hedged item/
commitment... .
P 1,960.60
Hedging Instrument:
3/01/20x3: Fair value of Option..P 3,000
12/31/20x3: Fair value of Option6)... 3,200
Foreign currency gain on hedging transaction
(option contract) 200.00
Net impact on 20x3 income loss (decrease)..P1,760.60
118. d
Sales (3/1/20x4 spot rate: P.089 x FC 2,000,000)
P 178,000.00
Adjustment: Firm Commitment Account balance
(credit balance) since the P12,000 is a foreign currency
loss then the firm commitment account is a credit balance
12,000.00*
Adjusted Sales
P190,000.00
Foreign exchange loss on hedged item/
commitment, 3/31/2012:
5/01/20x3: Spot rateP
.095
3/01/20x4 Spot rate.
.089
Foreign currency loss. P
.006
x: No. of foreign currencies... 2,000,000
Foreign currency loss for the entire hedged item
/commitmentP 12,000*
Less: PV of foreign loss due to hedged item
/commitment
1,960.60 (10,039.40)
Foreign currency gain on hedging instrument
(option contract):
12/31/20x3 (balance sheet date): Fair value of option.P
3,200
3/01/20x4 (expiration date) : Fair value of option
[(P0.95 P.089) x FC 2,000,000)..

Net impact on 20x4 income loss (decrease)..
12,000
119. c
Net cash inflow with option (P190,000 P3,000)
Cash inflow without option (at spot rate of P.089 x 2,000,000 FC.
Net increase in cash inflow
8,800.00
P188,760.60
P187,000
178,000
P 9,000
120. a
Note: P1.40, OP < P1.368, Market/spot rate Out-of-the-money (put option). Time value
element only, therefore any gain or loss is charged to profit and loss or current earnings, not
OCI. Refer to No. 99.
Quiz - XX
1. a the machines final recorded value should be the spot rate on the date of transaction
since it is hedging that involves exposed liability (P.00781 x 200,000,000 = P1,562,000).
2. c (P.1865 P.1850) gain x 100,000 FC = P150 gain
3. using spot rate
Accounts payable18,650
FC Units
18,650
4. c (P42 P40) gain x 1,000 FC = P2,000 gain
5.
6. b
Accounts payable42,000
FC Units
42,000
Hedging Instrument:
Origininal forward rate on the date of hedging.P
0.90
Balance Sheet date: Remaining (current) forward rate 12/3/1/20x4
0.93
Gain.P
.03
FC Forward Contract GainP 6,000
The entry would be as follows:
Foreign Currency Receivable from Exchange Broker6,000
Foreign Currency Gain
6,000
7. a
The entry on the date of expiration of the contract:

Pesos Payable to Exchange Broker (P.90 x 200,000 FC)..180,000
Cash..
180,000
Foreign Currency Units or Investment in Foreign Currency (P.92)184,000
Foreign Currency Loss forward contract..... 2,000
Foreign Currency Receivable from Exchange Broker (.P93)
186,000
8. b refer to No. 7
9. d refer to No.7
10. c
P1,000 = 50,000 FCs x (P.74 - P.72). The loss is calculated using only forward rates. On
September 30, 20x4, the loss is the difference between the 60-day forward rate of P.74 on
September 1 and the 30-day forward rate of P.72 on September 30, 20x4.
11. d
Date of transaction: 9/1/20x4: Spot rate..P
1.46
Balance Sheet date: Sept. 30, 20x4: Spot rate
1.50
Gain.P
.04
FC Transaction Loss..P 10,000
The question refers to foreign currency transaction loss which indicates that only the exposed
liability had a loss, while the the forward contract transaction results in a gain computed as
follows:
1.47
Balance Sheet date: Remaining (current) forward rate Sept. 30, 20x4
1.48
Gain.P
.01
If the question is the net impact on the net income the loss on exposed liability and the gain
of forward contract should be offsetted, thereby resulting a net effect of P7,500 decrease in
net income.
12. b speculation (gain or loss income statement)
1.47
1.48
Gain.P
.01
13. b
Receivable balance: P162,000 (spot rate on the balance sheet date, P.81 x 200,000 FCU)
Gain or loss: P4,000 loss [(P.83 P.81) x 200,000 FCU]
14.

1.16
Balance Sheet date: 4/30/20x4: Spot rate
1.20
Gain.P
.04
follows:
Gain.P
1.17
1.18
.01

net income.
15. P12,000
1.16
Balance Sheet date: 4/30/20x4: Spot rate
1.20
Gain.P
.04
follows:
1.17
1.18
Gain.P
.01
net income.
16. P3,000
1.17
1.18
Gain.P
.01
17. d
PAS 32 and 39 requires the FCU payable be recorded at the forward rate on the date of
hedging.
Letter (d) is the required entry under the old practice wherein the FCU payable are recorded
using the spot rate on the date of hedging.
18. d no adjustment required on the date of transaction.
19. (P1.47 x 600,000 FC) the original (60-day) forward rate on the date of hedging (i.e.,
November 30, 20x4)
20. since no forward contract was entered into, the only effect on income statement is only the
foreign currency exchange gain on exposed asset position.
Spot rate on the date of transaction: 12/16/20x4.P 0.00090
Balance Sheet date: Spot rate December 31, 20x4.
0.00092
GainP 0.00002

Foreign Currency Exchange Gain.P
10 M
200
21. P695.05 increase

Hedged Item: Exposed Asset:
Spot rate on the date of transaction: 12/16/20x4.P 0.00090
Balance Sheet date: Spot rate December 31, 20x4.
0.00092
GainP 0.00002
10 M
200
Hedging Instrument:
Original forward rate on the date of hedging: 12/16/20x4P 0.00098
Balance Sheet date: Remaining (current) forward rate 12/31/20x4
0.00093
Gain.P .00005
Multiplied by: No. of FCs. 10,000,000
500
Multiplied by: PV of P 1 at 12%.............
.9901
FC Forward Contract GainP 495.50
Net impact on 20x4 income statement..P
695.05
22. P100 increase
Hedged Item: Exposed Asset:
Balance Sheet date: Spot rate December 31, 20x4.P 0.00092
Date of Settlement: Spot rate January 15, 20x5.
0.00095
GainP 0.00003
10 M
300
Hedging Instrument:
Balance Sheet date: Remaining (current) forward rate 12/31/20x4P 0.00093
Date of expiration: Spot rate January 15, 20x5
0.00095
Loss..P
.00002
Multiplied by: No. of FCs 10,000,000
FC Forward Contract Loss.P
200
Net impact on 20x5 income statement..P
100
23. c (forward rate > spot rate premium) buyers point of view considered as premium
expense since it was purchase at a higher rate plus a loss on firm commitment (i.e., P1.21
P1.20)
Theories
Completion Statements
1. hedging
2. existing assets and liabilities, firm commitments, forecasted transactions
3. firm commitment
4. forecasted
5. hedged item
6. hedging instrument
7. FX forwards, FX options
8. two-sided, counterbalanced
9. one-sided, counterbalanced
10. Hedge accounting
11. exchange rate, specified period
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
call, put
option holder
option writer
premium
in the money
time value element, intrinsic value element
exchange rate, future date
fulfill, obligation
take
executory
unrealized
the net position, setoff
premium, discount, time value
premium, decrease
split accounting
designated, effective, firm
speculating
firm commitment, forecasted transaction
market, credit, liquidity
market, credit
market, liquidity
unlimited
on-balance-sheet, off-balance-sheet
rights, obligations, assets, liabilities
fair values
assets, liabilities
undesignated, fair value, cash flow, net investment
asset, liability, firm commitment
forecasted transaction.
fair value
cash flow
net investment
earnings
other comprehensive income, earnings
earnings, earnings
forward
valuing, reporting
hedging effectiveness
time value
ineffective
True or False
52. False
53. False
54. False
55. False
56. True
57. True
58. False
59. True
60. True
61. False
68.
69.
70.
71.
72.
73.
74.
75.
76.
77.
False
False
True
False
False
False
True
True
True
True
84.
85.
86.
87.
88.
89.
90.
91.
92.
93.
True
False
True
True
False
False
False
True
False
True
100.
101.
102.
103.
104.
105.
106.
107.
108.
109.
False
True
True
False
True
True
True
True
False
True
116.
117.
118.
119.
120
121.
122.
123.
124.
125.
True
False
False
True
True
False
False
False
False
True
132.
133.
134.
135.
136.
137.
138.
139.
140.
141.
True
False
True
False
False
False
False
False
True
False
148.
149.
150
151.
152.
False
True
False
True
False
62.
63.
64.
65
66.
67.
True
False
False
True
False
False
78.
79
80.
81.
82.
83.
True
False
False
False
False
True
94.
95.
96.
97.
98.
99.
False
True
False
False
False
False
Multiple Choice Questions (theories)

153. E
161. C
171.
154. B
162. B
172.
155. A
163. B
173.
156. E
164. B
174.
157. E
165 A
175.
158. D
166. E
176.
159. B
167. E
177.
160. D
168. A
178.
169. A
179
170. D
180.
Note for:
197.
199.
202.
E
C
B
C
A
A
A
C
A
D
110.
111.
112.
113.
114.
115.
181.
182.
183.
184.
185.
186.
187.
188.
189.
190.
False
False
False
False
True
False
E
C
A
D
D
B
A
B
A
C
126.
127.
128.
129.
130.
131.
191.
192.
193.
194.
195.
196.
197.
198.
199.
200.
False
True
False
True
False
False
C
A
C
B
B
B
d
c
c
a
142.
143.
144.
145.
146.
147.
201.
202.
203.
204.
205.
206.
207.
208.
209.
210.
True
False
True
False
True
False
b
c
d
d
b
c
d
c
d
b
An underlying is a financial or physical variable.

The net investment must be less than that required for other types.
Trading securities do not qualify for hedge accounting. Under PFRS 9, there is no more
classification as to trading and available-for-sale instead it is now classified either as FVTPL and
FVTOCI.
211.
212.
213.
204.
215.
216.
217.
218.
219.
220
c
c
b
b
b
b
c
d
d
a

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Chapter 20

Forward Rate for

*original 90-day forward rate on 12/1/20x4

1. Not a Hedge Accounting - Importing Transaction (Exposed Liability).

Hedging Instrument Forward Contracts

Forward Contract (fair value asset)

Pesos Payable from XD.

These transactions can be summarized in the following table.

Hedging Instrument (Forward Contract)

Hedging Instrument Forward Contracts

Memorandum entry only,

To record purchase of goods on

Accounts payable (P40.20 x $1,200)

Forward Contract (Asset/Liability)

P360 loss - [(P40.30 P40.00) x $1,200]

Net Method: Zero. No entry required.

FC Receivable from XD (P40.40 x $1,200)

Net Method: P300.

Forward contract (debit balance asset)

e.3. P60 debit balance asset

FC Receivable from XD (P40.20 x $1,200)

Forward Contract (Asset/Liability)

f. P48,000 [P40, spot (current) rates on the date of transaction x $1,200]

Hedging Instrument Forward Contracts

Date of Commitment (Date of Issuing the Purchase

Date of Inception/Hedging of 90 days Forwards

December 31, 20x4

Balance Sheet Presentation on 12/31/20x4

Inventory (P40.20 x $1,200).

Pesos Payable from XD.

commitment. This treatment is an

P300 loss - [(P40.40 P40.15) x $1,200]

c. same with Exposed Liability

d.1. Zero, no entry required

e. Same with Exposed Liability

e.2. P300 asset

Forward contract (debit balance asset)

FC Receivable from XD (P40.40 x $1,200)

e.3. P60 debit balance asset

FC Receivable from XD (P40.20 x $1,200)

Forward Contract (Asset/Liability)

f. P48,240, spot rate on the date of transaction.

Hedging Instrument Forward Contracts

No journal entry is required to record the forecasted

December 31, 20x4

Balance Sheet Presentation on 12/31/20x4

Pesos Payable from XD.

Machinery (P40.20 x $1,200)...

OCI Exchange Gain..

Other Comprehensive Income

Gain or loss on hedged item, 3/1/20x4: None, no entry required

Other Comprehensive Income

c. Same with Exposed Liability

c.2. P300 asset

Forward contract (debit balance asset)

FC Receivable from XD (P40.40 x $1,200)

c.3. P60 debit balance asset

FC Receivable from XD (P40.20 x $1,200)

Forward Contract (Asset/Liability)

4. Not a Hedge Accounting Speculation.

Hedging Instrument Forward Contracts

December 31, 20x4

Balance Sheet Presentation on 12/31/20x4