Foreign Currency Transactions - IAS 21

- are those that are designated /denominated/ due to be settled in currency other than the
FUNCTIONAL CURRENCY of the reporting entity.

-are accounted for :

I. Two-transaction approach
1. Purchase and Pay
2. Sell and Collect

II. Spot Rate Method

1. Buying spot rate for AR
2. Selling spot rate for AP

III. Effects of fluctuation

1. Appreciation
Asset - Loss
Liability - Gain

2. Depreciation
Asset - Gain
Liability - Loss

3. Any G/L is taken to P/L

Reporting at B/S Date

I. AR/AP in BS - at exchange rate on B/S date

II. Sales/Purchases/PPE - at exhange rate on sale/purchase date (historical rate)

Problem 1

On November 2, 2020, PWC Company purchased merchandise from a U.S. firm for $40,000. PWC's year
end is December 31. Relevant spot rates at various dates are as follows:
Dec. 15, 2020 - date of arrival of goods ₱ 46.50
Dec. 31, 2020 - balance sheet date for the firm 46.55
Jan. 10, 2021 - date of payment 46.60

Required: Prepare the necessary journal entries.

Problem 2
On November 3, 2020 Caltex Company sold merchandise for $20,000 to a U.S. firm. The exchange rates
at various dates follow:

Nov. 20, 2020 - date of shipment ₱ 46.60

Dec. 31, 2020 - balance sheet date 46.70
January 25, 2020 - date of collection 46.80

Required: Prepare the necessary journal entries.

Problem 3

Malaysia produces automobile transmissions, which are then sent to the Philippines where they are
installed in domestically built cars. Hyundai Motors, a Filipino auto company received a shipment of
transmissions on December 15, 2020. The transmissions were subsequently paid for on January 30,
2021. The invoice was denominated in Malaysian ringgit and totalled 5,000,000 ringgit. The relevant
exchange rates are as follows:

Dec. 15 , 2020 ₱ 13.68

Dec. 31, 2020 13.40
Jan. 30, 2021 13.20

Required: Prepare the necessary journal entries.

Problem 4

On December 1, 2020, SMC Corporation ordered equipment FOB shipping point from an American
Company for $10,000. The equipment was shipped and invoiced to SMC on December 16, 2020. SMC
paid the invoice on January 15, 2021. Relevant spot rates for US dollars on the respective dates are as
follows:

Buying S.R. Selling S.R.

Dec. 1, 2020 ₱ 48.50 ₱ 48.00
Dec. 16, 2020 48.90 50.00
Dec. 31 2020 49.50 51.00
Jan. 15, 2021 50.00 50.50

Required:
1. Prepare the necessary journal entries.
2. Determine the following:
Foreign exchange gain or loss on:
1. December 16, 2020 -
 2. December 31, 2020 10,000 loss
3. January 15, 2021 5,000 gain
On December 31, 2020:
1. Accounts Payable 510,000
2. Equipment 500,000

Problem 5

KPMG Corporation sold merchandise - metal crafts to a Canadian Corporation for 10,000 Canadian
dollars. Pertinent information on exchange conversion rates related to this transactions were as follows:

Buying S.R. Selling S.R.

Nov. 16, 2020 - receipt of order ₱ 31.50 ₱ 32.00
Dec. 16, 2020 - date of shipment 32.50 33.00
Dec. 31 2020 - balance sheet date 33.50 33.75
Jan. 15, 2021 - date of collection 33.00 34.00

Required:
1. Prepare the necessary journal entries.
2. Determine the following:
Foreign exchange gain or loss on:
1. December 16, 2020 -
2. December 31, 2020 10,000 gain
3. January 15, 2021 5,000 loss
On December 31, 2020:
1. Accounts receivable 335,000
2. Sales 325,000
 Functional Currency is the currency of the primary economic environment in which the entity operates.

Presentation Currency is the currency in which the financial statements are presented.

Item Exchange Rate

Monetary Items Closing Rate
Non monetary items Historical Rate
Non monetary items measured at FV Rate when the FV is determined (closing rate)

Dec. 15 Purchases 1,860,000

Accounts Payable 1,860,000

Dec. 31 Loss 2,000

Accounts Payable 2,000

Jan. 10 Accounts Payable 1,862,000

Loss 2,000
Cash 1,864,000
Nov. 20 Accounts Receivable 932,000
Sales 932,000

Dec. 31 Accounts Receivable 2,000

Gain 2,000

Jan. 25 Cash 936,000

Accounts Receivable 934,000
Gain 2,000

Dec. 15 Purchases 68,400,000

Accounts Payable 68,400,000

Dec. 31 Accounts Payable 1,400,000

Gain 1,400,000

Jan. 30 Accounts Payable 67,000,000

Cash 66,000,000
Gain 1,000,000

Dec. 16 Equipment 500,000

Accounts Payable 500,000

Dec. 31 Loss 10,000

Accounts Payable 10,000

Jan. 15 Accounts Payable 510,000

Cash 505,000
Gain 5,000
Dec. 16 Accounts Receivable 325,000
Sales 325,000

Dec. 31 Accounts Receivable 10,000

Gain 10,000

Jan. 15 Cash 330,000

Loss 5,000
Accounts Receivable 335,000
he entity operates.
 Foreign Currency Translation

Problem 1

Royale Corporation, a Philippine owned corporation had 100% ownership interest of BEAUTY
Company based in Toronto, Canada. Beauty's trial balance at December 31, 2020 in Canadian
dollars is as follows:
Debit Credit
Cash $ 30,000
Accounts Receivable 18,000
Land and buildings, net 100,000
Accounts payable $ 18,000
Bonds payable - 10% 45,000
Capital stock 50,000
Retained earnings, January 1 30,000
Dividends 5,000
Sales 75,000
Cost of sales and expenses 65,000
Totals $ 218,000 $ 218,000

In additon, the following information was available:

1. Transactions involving land and buildings, bonds payable and capital stock all occurred in 2016.
2. Dividends were declared on March 15, 2020 and paid on October 15, 2020.
3. The relevant exchange rates for every 1 Canadian dollar were as follows:

2016 ₱ 35.00
Jan. 1, 2020 41.00
Jan. 31, 2020 42.00
Mar. 15, 2020 46.00
Oct. 15, 2020 48.00
Average for 2016-2020 48.50
Average for 2020 47.00
Dec. 31, 2020 49.00

Required: Translate the financial statement of the Canadian Subsidiary into Presentation
Currency if the functional currency is not the currency of a hyperinflationary economy (Current
Rate Method/ Net Investment Method/ Closing Rate Method), assuming that:

a. Revenues and costs are assumed to have occurred evenly throughout the year.
b. The peso balance of Retained Earnings on December 15, 2019 was P1,230,000.
Problem 2

A wholly owned subsidiary of Adelle Inc. has certain exepense accounts for the year ended
December 31, 2020, stated in local currency units (LCU) as follows:

LCU
Depreciation of equipment (related assets were purchased 1/1/2019) 120,000 NM
Provision for doubtful accounts 80,000 M
Rent 200,000 NM
Amortization of copyrights (acquired on 1/1/2018) 50,000 NM

The exchange rates of various dates are as follows:

Peso equivalent of 1
LCU
December 31, 2020 ₱ 0.40
Average for the year ended 12/31/20 0.44
January 1, 2018 0.50
January 1, 2019 0.52

The subsidiary's functional curency is not the currency of hyperinflationary economy (Current
Rate Method/Net Investment Method/Closing Rate Method).

Required:

1. The charges of the expense accounts occurred approximately evenly during the year. What
total peso amount should be included in Adelle's 2020 consolidated income statement to reflect
theses expenses? 450,000 x 0.44 = 198,000

2. When the subsidiary's functional currency is the currency of a hyperinflationary economy,

what total peso amount should be included in Adelle's 2020 consolidated income statmeent to
reflect these expenses ignoring price index? 450,000 x 0.40 = 180,000

HYPERINFLATIONARY

1) Remeasure the Net Monetary Position.

Monetary . . . . . . . . . . . X 1
Non-monetary . . . . . . . Present P1
 Base P1

2) Recognize G/L to P/L

3) Translate all accounts (Assets, Liab, Equity, Revenue and Expenses) @ current rate
4) No TG/TL will result.

Problem 3

COCO Company operates in a hyperinflationary economy. Its balance sheet at December 31,
2020, follows:
Ringgit
PPE 900,000
Inventory 2,700,000
Cash 350,000
Share capital (issued 2016) 400,000
Retained earnings 2,350,000
Noncurrent liabilities 500,000
Current liabilities 700,000

The general price index had moved in this way: The following are the exchange rates:

Dec. 31 Dec. 31
2016 100 2016 ₱ 1.20
2017 130 2017 1.24
2018 150 2018 1.27
2019 240 2019 1.50
2020 300 2020 1.75

The property, plant and equipment were purchased on December 31, 2018, and there is a six
months inventory held. The noncurrent liabilities were loans raised on March 31, 2020.

Required:

1. The total assets after adjusting for hyperinflationary should be: 5,150,000
2. The retained earnings on December 31, 2020 after adjusting for hyperinflationary is:
3. The retained earnings on December 31, 2020 as translated is
 Dollars Exchange Pesos
Rate
Debit Credit Debit Credit
Cash $ 30,000 49 ₱ 1,470,000
Accounts Receivable 18,000 49 882,000
Land and buildings, net 100,000 49 4,900,000
Accounts payable $ 18,000 49 882,000
Bonds payable - 10% 45,000 49 2,205,000
Capital stock 50,000 35 1,750,000
Retained earnings, January 1 30,000 Given 1,230,000
Dividends 5,000 46 230,000
Sales 75,000 47 3,525,000
Cost of sales and expenses 65,000 47 3,055,000
Sub-totals $ 218,000 $ 218,000 10,537,000 9,592,000
Cum. Transl. Gain 945,000
Totals 10,537,000 10,537,000

Income Statement and Retained Earnings Dollars Pesos

Sales $ 75,000 ₱ 3,525,000

Less: Cost of Sales and Expenses 65,000 3,055,000
Net Income 10,000 470,000
Add: Retained Earnings, Jan. 1 30,000 1,230,000
Total 40,000 1,700,000
Less: Dividends 5,000 230,000
Retained Earnings, Dec. 31 $ 35,000 ₱ 1,470,000

Balance Sheet Dollars Pesos

Cash $ 30,000 ₱ 1,470,000

Accounts Receivable 18,000 882,000
Land and Buildings 100,000 4,900,000
Total Assets $ 148,000 ₱ 7,252,000

Accounts Payable $ 18,000 ₱ 882,000

Bonds Payable 45,000 2,205,000
Capital Stock 50,000 1,750,000
Retained Earnings, Dec. 31 35,000 1,470,000
 Subtotal 148,000 6,307,000
Cumulative Translation Gain/Loss - 945,000
Total Liabilities and Stockholders' Equity $ 148,000 ₱ 7,252,000

NM

NM
NM
 Present PI
HC @ FC @RV in FC ER @RV in LC
Base PI
Cash 350,000 1 350,000 1.75 612,500
Inventory 2,700,000 300/270 3,000,000 1.75 5,250,000
PPE 900,000 300/150 1,800,000 1.75 3,150,000
Total 3,950,000 5,150,000 1.75 9,012,500

CL 700,000 1 700,000 1.75 1,225,000

NCL 500,000 1 500,000 1.75 875,000
SC 400,000 300/100 1,200,000 1.75 2,100,000
RE 2,350,000 400,000 2,750,000 1.75 4,812,500
Total 3,950,000 5,150,000 1.75 9,012,500

400,000 remeasurement gain - P/L - Balancing figure

2,750,000
P4,812,500