QUIZ 1- FOREIGN TRANSACTIONS

Test 1 Answers in the date column. Use the following terms for nos. 1 to 5.
denominated, direct quote, measured, translation, indirect quote, forward rate,
spot rate, closing rate, historical rate (transaction date)
1. The process of expressing monetary amounts stated in foreign currency to the currency of the reporting
entity by using an appropriate exchange rate. Translation
2. The rate that at which currencies can be exchanged in the future. Forward rate
3. Exchange rates stated in terms of converting one unit of a domestic currency into units of a foreign
currency. Indirect quote
4. Non monetary assets acquired on Oct 31, should be presented in the balance sheet on December 31
using this rate, as provided for in IAS 21. Historical rate
5. IAS 21 prescribes recognition of nominal accounts in the income statement using this rate. Historical
rate.
True or False 6 to 9 are based on the following information:
Given the following rates: March 1 P0.2354 (date of purchase/sale)
March 31( end of acctg period) P0.2378
April 15 P0.2389 (settlement date)
6. It can be inferred that the peso is strengthening. False, when rate goes up (more units of pesos are
needed to buy a foreign currency), peso is depreciating or weakening.
7. It would be advisable for an importer to hedge and minimize any loss on the foreign transaction. True
8. Given the following rates, an exporter will recognize a gain on the change of the rates. True
9. A machine purchased on March 1 should be reported on the balance sheet using the rate of March
31.False, should be rate of March 1.
10. A forward contract should be entered into by an exporter to hedge an exposed liability position. False,
an exporter will record a receivable in foreign currency thus it will hedge an exposed asset position.
TEST II.
1. a. Use the current exchange rates to show the direct quote of the HK dollar against Thailand baht The
US dollar forex to make the necessary exchange rate between the two sets of foreign currencies
are:
USD 0.1284: HKD 1 and USD 0.0329: TB 1
b. How many HK dollars will a Hong Kong importer need to buy goods worth 850,000 bahts?
2. Ned Trading of the Philippines received a promissory note denominated in foreign currency for the
sale made to a regular Singaporean customer. Use the BSP exchange rate bulletin. The following are
the related transactions:
Mar 5, 2015 Native Corp sold merchandise and received a 15% promissory note for S$20,000.
Mar 31, 2015 The sport rate appreciated by P.05.
April 14, 2015. The Singaporean customer settled its account. Spot rate was P31.9565
Required: a. Amount of sale to be included in the March 31 income statement.
b. Amount of notes receivable and interest receivable as of March 31.
c. Forex gain or loss included in the March 31 income statement
d. Total collection on April 14.
e. Forex gain or loss recognized on April 14.
3. On March 1, 2014 Nobel Company a US based manufacturing company bought an equipment from a
company located in Munich Germany. The liability was to be settled in german marks on May 30,
2014 for 1,000,000. The exchange rates show the direct quote of the US dollars against the German
marks as follows:
Selling Buying Selling Buying
March 1 $0.75 $.73 May 30 $0.815 $0.79
April 30 0.78 .670 June 30 0.818 0.784
Make all the necessary entries from the viewpoint of the importer. Assume company’s accounting
period ends on April 30.
4. Refer to no.3 Assume Nobel entered into a 90 day forward contract on March 1. The forward
rates are:
March 1 $.79 60 day contract $.795 90 day $.799 120 day
April 30 .8 1 30 day contract .850 60 day .885 90 day
May 30 .83 30 day contract .87 60 day .895 90 day
a. Entries to record the above on March 1, April 30 and May 30.
b. What was the amount of foreign currency due from broker as at April 30 recorded by Nobel?
c. What was the liability due to broker as at May 30 presented in Nobel’s balance sheet?
d. What was the total gain (loss) recognized by Nobel?
Prove by comparing the total gain (loss) you recorded in no. 4 and no. 5
SOLUTION TO FOREIGN CURRENCY TRANSACTIONS

1. a. 1/.1284= HK$7.788 to a US$. Thus, HK$ 7.788 x US$.0329 = HK$ .2562 to buy a Baht.
b. HK$ .2562 to buy a baht, thus HK$.2562 x THB 80,000= HK$ 217,770

2. a. Sales S$20,000 x P32.244 = P644,880 in the income statement of March 31. IAS 21 prescribes
nominal accounts to be measured based on rate of the transaction date which is March 1.

b. Notes receivable S$20,000 x P32,194= P643,880 on March 31. IAS 21 prescribes monetary
items to be measured subsequently at the closing rate.
Interest Receivable S$ 20,000 x .15 x 26/360= S$216.67 x P32.194= P6,975. Same rule as NR.

c. On March 31, it is only the notes receivable which is remeasured from 32.244 to 32.194 or P.05
x S$20,000= P1,000 loss. Value of receivable went down.

d. Mar 5 to April 14 is 40 days, thus 20,000 x .15 x 40/360= S$333.33 + 20,000=

S$20,333.33 maturity value x P31.9565= P649,782

e. On April 30, two receivable accounts will be remeasured:

32.194-31.9565= .2375 x S$20,216.67= P4,801.50 loss

3. relevant rates are 3/1 P.75 4/30 P.78 5/30 P.815

3/1 Equipment 750,000

Accounts Payable 750,000

4/30 Forex Loss 30,000

Accounts Payable 30,000

5/30 Accounts Payable 780,000

Forex Loss 35,000
Cash (German Marks1,000,000) 815,000

Total forex loss of P65,000

4. relevant rates are 3/1 P.795 4/30 P.81 5/30 P.815

3/1 Foreign Currency due from Broker 795,000

Liability To Broker (in pesos) 795,000

4/30 Foreign Currency due from Broker 15,000

Forex Gain (.81 - .795) 15,000

5/30 Liability to Broker 795,000

Cash (in pesos) 795,000

Cash (in foreign currency @.815 815,000

Foreign Currency due fr Broker 810,000
Forex Gain 5,000

b) Amount of foreign currency due from broker P810,000

c) none on May 30. If question is the liability to pay broker as at 4/30 then the answer will be
P795,000.
d)
Total loss for buying a forward contract .795 - .75 = .045 x 1M= P45,000
Loss without hedging (refer to no. 3) P65,000
Loss minimized by P20,000

Proof are the gains in 4/30 P15,000 and 5/30 P5,000.

FOREIGN OPERATION

5. Certain balance sheet accounts in a 100% owned US foreign subsidiary of St. Bede Bell Co of the
Philippines as at December 31, 2014:
Cash and Marketable Securities $115,000
Accounts Receivable 100,000
Notes Receivable 150,000
Inventories 135,000
Buildings (acquired 2011) 500,000
Accumulated Depreciation 100,000
Revenues 2,000,000
Expenses 1,400,000
Bad Debts 10,000
Dividends, Dec 1 200,000
Depreciation 15,000
Liabilities 75,000
Common Stock, par 50 275,000
Retained Earnings Jan 1 175,000

Exchange Rate
January 1, 2011 P45
April 1, 2011 P44.25
January 1, 2014 44.50
Average for 2014 44.125
December 1, 2014 44.75
December 31, 2014 44.375

a. Give the total amount of assets, liabilities and net income translated into the reporting
currency pesos if the functional currency in US dollars is not a currency of a
hyperinflationary economy. Retained earnings beg translated already at P7,743,750.
b. Give the shareholder’s equity of the subsidiary was acquired

Cash and Marketable Securities $ 115,000 X 44.375 P5,103,125

Accounts Receivable 100,000 X 44.375 4,437,500
Notes Receivable 150,000 X 44.375 6,656,250
Inventories 135,000 X 44.375 5,990,625
Buildings (acquired 2011) 500,000 X 44.375 22,187,500
Accumulated Depreciation 100,000 X 44.375 P 4,437,500
Revenues 2,000,000 X 44.125 88,250,000
Expenses 1,400,000 X 44.125 61,775,000
Bad Debts 10,000 X 44.125 441,250
Depreciation 15,000 X 44.125 661,875
Liabilities 75,000 X 44.375 3,328,125
Common Stock, par 50 275,000 X 45.000 12,375,000
Retained Earnings Jan 1 175,000 7,743,750
Dividends, Dec 1 200,000 X 44.75 8,950,000
Totals
Translation Adjustment*
Totals

*On the side that is lesser. This is an equity account, if on the debit side a deduction from SHE. .