FOREIGN CURRENCY TRANSACTIONS/ HEDGING/ TRANSLATION

Problem A. A purchase of merchandise from a foreign currency supplier is made on Nov. 10 2019. The
Philippine corporation purchased merchandise from a US firm for USD$15,000. The following rates were
available:
Buying Rate Selling Rate
November 10, 2019 US$1= P46.00 P1=$.021505
December 31, 2019 US$1= P45.80 P1 =$.021277
January 8, 2020 (settlement date) US$1= P46.20 P1=$.022222

How much is the foreign currency accounts payable on Nov. 10, 2019?
How much is the foreign currency accounts payable on Dec. 31, 2019?
How much is forex gain or loss on Dec. 31, 2019?
How much is the payment on the settlement date?
How much is forex gain or loss on the settlement date?

Problem B. A selling of merchandise to a foreign customer is made on Nov. 10, 2019. The Philippine
corporation sold merchandise to a US firm for USD$15,000. The following rates were available:

Buying Rate Selling Rate

November 10, 2019 US$1= P44.65 P1= US$.021505
December 31, 2019 US$1= P45.80 P1= US$.021277
January 8, 2020 (settlement date) US$1= P45.10 P1= US$.022222

How much is the foreign currency accounts receivable on Nov. 10, 2019?
How much is the foreign currency accounts receivable on Dec. 31, 2019?
How much is forex gain or loss on Dec. 31, 2019?
How much is the cash proceeds on the settlement date?
How much is forex gain or loss on the settlement date?

Problem C. On March 31, 2020, a Philippine company purchases merchandise to a foreign supplier in
Singapore dollar. The merchandise costs SG$12,000. On April 1, 2020, the Philippine company borrowed a
30-day 12% note payable to pay for the merchandise. On April 30, 2020, the Philippine company paid the
note payable.

Buying Rate Selling Rate

March 31, 2020 P1= SG$.029411 SG$1= P35.47
April 30, 2020 P1= SG$.028571 SG$1= P36.07

How much is the foreign currency notes payable on March 31, 2020?
How much is the interest expense on April 30, 2020?
How much is the cash payment on the settlement date?
How much is forex gain or loss on April 30, 2020?

Problem D. On March 1, 2020, a Philippine company sells merchandise to a foreign customer in Singapore
dollar. The merchandise costs SG$12,000. On the same date, the Philippine company received a 60-day 12%
note receivable from the foreign customer. On April 30, 2020, the Philippine company collected the total
proceeds from the foreign customer.

Buying Rate Selling Rate

March 1, 2020 P1= SG$.029411 SG$= P35.47
March 31, 2020 P1= SG$.028901 SG$= P36.10
April 30, 2020 P1= SG$.028571 SG$= P36.07

How much is the foreign currency note receivable on March 1, 2020?

How much is the foreign currency note receivable on March 31, 2020?
How much is interest receivable on March 31, 2020?
How much is forex gain or loss on March 31, 2020?
How much is total cash collection from the foreign supplier?
How much is interest income on April 30, 2020?
How much is forex gain or loss on April 30, 2020?

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FORWARD CONTRACT (FAIR VALUE HEDGE)

Problem D. On June 1, 2020 A Corp. purchased merchandise worth 500,000 Yen from J Corp. which is
payable on August 1, 2020. To minimize the risk, A Corp. bought 500,000 Yen on June 1, 2020 for deliver on
August 1, 2020. The following exchange rates occurred:

Buying Selling Forward Rate

June 1, 2020 Y1= P.46 Y1= P.46 Y1= P.48 (60-day)
June 30, 2020 (fiscal year end) Y1= P.47 Y1= P.48 Y1= P.50 (30-day)
August 1, 2020 Y1= P.50 Y1= P.51

How much is the accounts payable on June 1, 2020?

How much is the forward contract receivable on June 1, 2020?
How much is the forex gain or loss in the import transaction on June 30, 2020?
How much is the forex gain or loss in the forward contract on June 30, 2020?
How much is the forex gain or loss in the hedging activity on June 30, 2020?
How much is paid in the final settlement in the import transaction?
How much is the forward contract receivable on June 30, 2020?
How much is the forex gain or loss in the import transaction on the settlement date?
How much is the forex gain or loss in the forward contract on the settlement date?
How much is the forex gain or loss in the hedging activity on the settlement date?
How much is total net gain or loss?

Problem E. On December 1, 2020 A Corp. sold merchandise worth 50,000 Rial from S Corp. which is payable
on December 31, 2020. To minimize the risk, A Corp. sold 50,000 Rial on December 1, 2020 for delivery on
February 1, 2018. The following exchange rates occurred:

Buying Selling Forward Rate

December 1, 2020 R1= P12.80 R1= P12.75 R1= P12.95 (60-day)
December 31, 2020 (fiscal year end) R1= P12.70 R1= P12.66 R1= P12.60 (30-day)
February 1, 2018 R1= P12.90 R1= P12.80 R1= P12.60

How much is the accounts receivable on December 1, 2020?

How much is the forward contract payable on December 1, 2020?
How much is the forex gain or loss in the export transaction on December 31, 2020?
How much is the forex gain or loss in the forward contract on December 31, 2020?
How much is the forex gain or loss in the hedging activity on December 31, 2020?
How much is collected in the final settlement in the export transaction?
How much is the forward contract payable on December 31, 2020?
How much is the forex gain or loss in the export transaction on the settlement date?
How much is the forex gain or loss in the forward contract on the settlement date?
How much is the forex gain or loss in the hedging activity on the settlement date?
How much is total net gain or loss?

FORWARD CONTRACT FIRM COMMITMENT (FAIR VALUE HEDGE)

Problem F. On October 1, 2019 the entity purchased an equipment from a European company and to be
delivered on February 28, 2020 and the cost is 5,500 euros. To protect from the fluctuation of the euro
currency, the entity purchased a 150-day forward contract for 5,500 euros.

Buying Selling Forward Rate

October 1, 2019 £1= P51.46 £1= P51.46 £1= P51.48 (150-day)
October 31, 2019 £1= P51.50 £1= P51.48 £1= P51.51 (120-day)
November 30, 2019 £1= P51.36 £1= P51.49 £1= P51.53 (90-day)
February 28, 2020 £1= P51.35 £1= P51.52 £1= P51.50

How much is the equipment on October 1, 2019?

How much is the forex gain or loss in the hedge item on October 31, 2019?
How much is the forex gain or loss in the hedging instrument on October 31, 2019?
How much is the forex gain or loss in the hedge item on November 30, 2019?
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How much is the forex gain or loss in the hedging instrument on November 30, 2019?
How much is the forex gain or loss in the hedge item on the settlement date?
How much is the forex gain or loss in the hedging instrument on the settlement date?
How much is the equipment on the settlement date?

Problem G. On October 1, 2019 the entity secured an order of an merchadise from an Australian company
and to be delivered on February 28, 2020 and the cost is 12,500 AUD. To protect from the fluctuation of the
australian currency, the entity sold 12,500 AUD for delivery in 150 days.

Buying Selling Forward Rate

October 1, 2019 AUD$1= P35.55 AUD$1= P35.56 AUD$1= P35.75 (150-day)
October 31, 2019 AUD$1= P35.50 AUD$1= 35.80 AUD$1= P35.80 (120-day)
November 30, 2019 AUD$1= P36.00 AUD$1= P35.42 AUD$1= P35.78 (90-day)
February 28, 2020 AUD$1= P35.59 AUD$1= P35.80 AUD$1= P35.76

How much is the revenue from the sale of merchandise on October 1, 2019?
How much is the forex gain or loss in the hedge item on October 31, 2019?
How much is the forex gain or loss in the hedging instrument on October 31, 2019?
How much is the forex gain or loss in the hedge item on November 30, 2019?
How much is the forex gain or loss in the hedging instrument on November 30, 2019?
How much is the forex gain or loss in the hedge item on the settlement date?
How much is the forex gain or loss in the hedging instrument on the settlement date?
How much is the revenue from the sale of merchandise on the settlement date?

SPECULATION

Problem H. The entity entered into a 180-day forward contract to buy 500,000 Yen for speculation
purposes.

Buying Selling Forward Rate

October 1, 2019 ¥1= P.36 ¥1= P.38 ¥1= P.40 (180-day)
December 31, 2019 ¥1= P.35 ¥1= P.39 ¥1= P.385 (90-day)
March 30, 2020 ¥1= P.355 ¥1= P.43 ¥1= P.415

How much is the forward contract receivable on October 1, 2019?

How much is the forex gain or loss in the forward contract on December 31, 2019?
How much is the forward contract receivable on December 31, 2019?
How much is the forex gain or loss in the forward contract on the settlement date?
How much is the forward contract payable on the settlement date?

Problem I. The entity entered into a 120-day forward contract to sell 55,000 Chinese Yuan for speculation
purposes.

Buying Selling Forward Rate

December 1, 2019 CNY1= P7.16 CNY1= P7.17 CNY1= P7.18 (120-day)
December 31, 2019 CNY1= P7.25 CNY1= P7.15 CNY1= P7.22 (90-day)
March 30, 2020 CNY1= P7.21 CNY1= P7.14 CNY1= P7.20

How much is the forward contract payable on December 1, 2019?

How much is the forex gain or loss in the forward contract on December 31, 2019?
How much is the forward contract payable on December 31, 2019?
How much is the forex gain or loss in the forward contract on the settlement date?
How much is the forward contract receivable on the settlement date?

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Problem J. A Philippine company owns a foreign company in London. The following data is given as of
December 31, 2014 measured in pounds.

Cash GBP 2,500

Accounts receivable 4,000
Invetories 5,500
Prepaid expenses 750
Property, plant, and equipment 12,000
Accumulated depreciation 3,000
Total Assets GBP 21, 750

Accounts payable GBP 3,500

Long-term debt (current portion) 500
Long-term debt 7,500
Capital stock 5,000
Retained earnings 5,250
Total Liabilities ad Stockholder’s Equity GBP 21,750

Revenues GBP 90,000

Cost of sales 80,000
Depreciation expense 1,500
Other expense 5,750

Additional Information:
There is a credit balance of the cumulative translation adjustment at December 31, 2013 of P50,000
Retained earnings at December 31, 2013 is measured at P119,500 in the Philippine books while in the British
company it is GBP 2,500. When the foreign company was incorporated, the exchange rate is GBP 1= P67.20
Following exchange rates are given:
January 1, 2014: GBP 1= P67.40
December 31, 2014: GBP 1= P67.60
Average for 2014: GBP 1= P67.50

CALL OPTION CONTRACTS (FAIR VALUE HEDGE)

Problem K. On October 1, 2014, the company took delivery from a Bahrain firm of invetory costing 850,000
dinar. Payment is due on January 30, 2015. Concurrently the company paid P11,700 to acquire an at-the-
money call option for 850,000 Bahrain dinar. The strike price is P9.40.

Market Price Fair value of the option

October 1, 2014 P9.40 P11,700

December 31, 2014 P9.423 P23,200
January 30, 2015 P9.435 P29.750

How much is the forex gain or loss on the hedging intrument due to change in the ineffective portion on
December 31, 2014 if changes in the time value will be excluded from the assessment of hedge
effectiveness?

How much is the forex gain or loss on the hedging instrument due to the change in the effective portion
on December 31, 2014 if changes in the time value will be excluded from the assessment of hedge
effectiveness?

How much is the forex gain or loss in the hedging activity on December 31, 2014?

How much is the forex gain or loss in the hedging instrument in 2014 if changes in the time value will be
excluded from the assessment of hedge effectiveness?

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PUT OPTION CONTRACTS (FAIR VALUE HEDGE)

Problem L. On December 1, 2014, the company acquired 3,400 shares of AMV Company at a cost of P42 per
share and classifies them as fair value-profit or loss. On the same date the company decides to hedge
againts possible decline in value of securities by purchasing at cost of P7,500 at-the-money put option to sell
3,400 shares. The option will expire on April 1, 2015.

AMV Company cost per share Fair value of the option

December 1, 2014 P42 P7,500

December 31, 2014 P40.50 P9,400
April 1, 2015 P38.25 P12,750

How much is the forex gain or loss on option contract due to the change in time value on December 31,
2014 if split accounting is used in the assessment of hedge effectiveness?

How much is the forex gain or loss on the option contract due to the change in intrinsic value on
December 31, 2014 if split accounting is used in the assessment of hedge effectiveness?

How much is the forex gain or loss in the hedging activity on December 31, 2014?

How much is the forex gain or loss in the option contract in 2014 of non-split accounting is used in the
assessment of hedge effectiveness?

Problem M. On November 1, 2019, Cebu Co. signed an ordinary contract for the delivery of specialized
equipment from US-based manufacturer at a selling price of US$1,000. The equipment was actually
delivered by the supplier to Cebu Co. on December 1, 2019 and Cebu Co. signed a 90-day short-term interest
bearing 12% note payable with due date on March 1, 2020. The note provides that the principal and interest
shall be paid on the maturity date. (Use 360-day). On December 1, 2019, in order to protect itself from
foreign currency risk, Cebu Co. entered into a forward contract with BPI for the purchase of US$1,030 to be
delivered on March 1, 2020. The following direct exchange rates are provided:

November 1, 2019 December 1, 2019 December 31, 2019 March 1, 2020

Buying spot rate P40 P39 P38 P41
Selling spot rate P42 P41 P45 P40
Forward buying 90-days P43 P43 P41 P46
Forward selling 90-days P41 P42 P40 P47
Forward buying 60-days P45 P44 P42 P48
Forward selling 60-days P43 P41 P43 P49
Forward buying 30-days P42 P40 P44 P43
Forward selling 30-days P41 P43 P41 P45

Compute for the (1) gain̷ (loss) in hedging activity for the year ended December 31, 2019 and (2) gain ̷
(loss) in hedging activity for the year ended December 31, 2020

Problem N. On October 1, 2019, Davao Inc. sold on account an inventory to a US-based company at a price
of $5,000 collectible on January 30, 2020. On November 1, 2019, Davao Inc. purchased on account an
inventory to a US-based company at a price of $8,000 payable on March 2, 2020.

On October 1, 2019, in order to hedge the foreign currency risk related to its foreign currency denominated
account receivable, Davao Inc. acquired a 120-day put option from RCBC to sell $5,000 at a strike price of
P40 by paying option premium of P500. On November 1, 2019, in order to hedge the foreign currency risk
related to its foreign currency denominated account payable, Davao Inc. acquired a 120-day call option from
RCBC to buy $8,000 at an option price of P41 by paying option premium of P600.

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 The following additional data are provided:

10/1/2019 11/1/2019 12/31/2019 1/30/2020 3/2/2020

Buying spot rate P40 P38 P36 P37 P39
Selling spot rate P39 P41 P44 P41 P42
Fair value of put option ? ? P23,000 ? ?
Fair value of call option ? ? P25,000 ? ?

Compute for the net gain or loss as a result of hedging activity to be reported by Davao Inc. for the years
ended (1) December 31, 2019 and (2) December 31, 2020

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