A foreign currency transaction is "a transaction that is denominated or requires settlement in a foreign currency.

Initial recogntion
A foreign currency transaction is a initially recognized by translating the foreign currency amount into the function
currency using the spot exchange rate at the date of the transaction.

Subsequent measurement
At each reporting date, the following items are translated as follows:
Items Translated using
a. Monetary items Closing rate
b. Nonmonetary items Exchange rate at the date of transactions
measured at historical cost
c. Nonmonetary items Exhange rate at the date when the fair
measured at fair value value was determined

Monetary vs nomonetary items

Monetary items are currency held and assets and liabilities to be received or paid in a fixed or determinable amo
of money.
Non-monetary items are those that do not give rise to the receipt or payment of a fixed or determinable amount
money.

Monetary assets Non-monetary items

a. Cash and cash equivalents a. Inventories
b. Accounts/ Notes/ Loans b. Prepaid assets
receivable and their related c. Property, plant and equipment
allowances and other financial d. Investment property
assets measured at cost e. Intangible assets
c. Finance lease receivables f. Goodwill
d. Cash surrender value g. Provisions that are to be settled
by the delivery of a non-monetary asset
Monetary liabilities h. Share capital and share premium
a. Accounts/ Notes/ Loans
payable and their related
allowances and other financial
assets measured at cost
b. Employee benefits to be
paid in cash.
c. Provisions and accrued
payables to be settled in cash.
d. Cash dividends payable.

Spot exchange rate vs. Closing rate

The current exhange rate on Sep 1, 2020 and December 31, 2020 are the spot exchange rates on those dates.
If the entity use a calendar year period, the closing rate is the exchange rate on December 31, 2020.
Direct vs. Indirect quotation
a. Direct quotation
the exchange rate is stated in how much of a local currency must be exchanged to receive one unit of a foreign cu
e.g.,
P45:$1 $1 = P45 USD/PHP Last: P45

b. Indirect quotation
the exchange rate is stated in how much of a foreign currency must be exchanged to receive one unit of a local cu
e.g.,
P1:$0.022 P1 = $0.022 PHP/USD Last: $0.022

Exchange rate quote

Quote Currency
$1 = P45

Base Currency

-- The value of base currency is always 1.

-- When the value of quote currency increases, the base currency has appreciated and the quote currency has dep
-- When the value of quote currency decreases the base currency has depreciated and the quote currency has app

Exchange rate differences

Exchange difference is the "difference resulting from translating a given number of units of one currency into ano
currency at different exchange rates.

Monetary items are recognized in profit or loss in the period which they arise.

Date of Transaction Date of balance sheet

1/12/2020 12/31/2020

Foreign exhange gain/loss - 2020 Foreign exhange gain/loss - 2021

Date of Transaction Date of settlement

1/12/2020 12/15/2020

Foreign exhange gain/loss - 2020

Non-monetary items - recognized in OCI.
in a fixed or determinable amount
 receive one unit of a foreign currency.

to receive one unit of a local currency.

$1 = P45
$1 = P47

and the quote currency has depreciated.

and the quote currency has appreciated.

f units of one currency into another

Date of settlement
1/15/2021

hange gain/loss - 2021

Date of balance sheet

12/31/2020
On November 29, 2020, ABC Co., placed a non-cancellable purchase order with a company based in France to import a machi
The contract term is FOB shipping point. The machine was shipped on December 1, 2020 and was received by ABC on Decem
The purchase price was settled on January 3, 2020.

The following are the exchange rates:

November 29, 2020 P55:EUR 1

December 1, 2020 P58:EUR 1
December 15, 2020 P57:EUR 1
December 31, 2020 P60:EUR 1
January 3, 2021 P61:EUR 1

Requirement: Provide the journal entries.

Nov. 29, 2020 No entry

Dec. 1, 2020 Machinery (EUR 10,000 x P58) 580,000

Accounts Payable 580,000
To record the purchase of machine on an FOB shipping point term

Dec. 15, 2020 Accounts payable 10,000

Foreign exchange gain 10,000
To recognize exchange difference

Accounts payable - December 1, 2020 (EUR 10,000 x P58) 580,000

Accounts payable - December 15, 2020 (EUR 10,000 x P57) 570,000
Decrease in accounts payable - FOREX gain 10,000

Dec. 31, 2020 Foreign exchange loss 30,000

Accounts payable 30,000
To recognize exchange difference

Accounts payable - December 15, 2020 (EUR 10,000 x P57) 570,000

Accounts payable - December 31, 2020 (EUR 10,000 x P60) 600,000
Increase in accounts payable - FOREX loss - 30,000

Jan. 3, 2021 Accounts payable 600,000

Foreign exchange loss 10,000
Cash (EUR 10,000 x P61) 610,000
To recognize the settlement of purchase transaction
rance to import a machine for EUR 10,000.
eived by ABC on December 15, 2020.
On November 29, 2020, ABC Co., placed a non-cancellable purchase order with a company based in France to import a machi
The contract term is FOB shipping point. The machine was shipped on December 1, 2020 and was received by ABC on Decem
The purchase price was settled on January 3, 2020.

The following are the exchange rates:

November 29, 2020 EUR 0.0182: P1 0.0182

December 1, 2020 EUR 0.0172: P1 0.0172
December 15, 2020 EUR 0.0175: P1 0.0175
December 31, 2020 EUR 0.0167: P1 0.0167
January 3, 2021 EUR 0.0164: P1 0.0164

Requirement: Provide the journal entries.

Nov. 29, 2020 No entry

Dec. 1, 2020 Machinery (EUR 10,000 / EUR 0.0172) 580,000

Accounts Payable 580,000
To record the purchase of machine on an FOB shipping point term

Dec. 15, 2020 Accounts payable 10,000

Foreign exchange gain 10,000
To recognize exchange difference

Accounts payable - December 1, 2020 (EUR 10,000 / EUR 0.0172) 580,000

Accounts payable - December 15, 2020 (EUR 10,000 / EUR 0.0175) 570,000
Decrease in accounts payable - FOREX gain 10,000

Dec. 31, 2020 Foreign exchange loss 30,000

Accounts payable 30,000
To recognize exchange difference

Accounts payable - December 15, 2020 (EUR 10,000 / EUR 0.0175) 570,000
Accounts payable - December 31, 2020 (EUR 10,000 / EUR 0.0167) 600,000
Increase in accounts payable - FOREX loss - 30,000

Jan. 3, 2021 Accounts payable 600,000

Foreign exchange loss 10,000
Cash (EUR 10,000 / EUR 0.0164) 610,000
To recognize the settlement of purchase transaction
rance to import a machine for EUR 10,000.
eived by ABC on December 15, 2020.
On November 29, 2020, ABC co. received from a UK-based company a non-cancellable sales order for inventories
with a sale price of £10,000 (pound sterling). The contract term is FOB shipping point. The inventories were shipped
on December 1, 2020. The sale was settled on January 3, 2021

The following are the exchange rates:

November 29, 2020 P67:£1

December 1, 2020 P68:£1
December 31, 2020 P70:£1
January 3, 2020 P71:£1

Requirement: Provide the journal entries.

Nov. 29, 2020 No entry

Dec. 1, 2020 Accounts receivable (£10,000 x P68) 680,000

Sale 680,000
To record the sale of inventories on an FOB shipping point term

Dec. 31, 2020 Accounts receivable 20,000

Foreign exchange gain 20,000
To recognize exchange difference

Accounts receivable - December 1, 2020 (£10,000 x P68) 680,000

Accounts receivable - December 31, 2020 (£10,000 x P70) 700,000
Increase in accounts receivable - FOREX gain 20,000

Jan. 3, 2021 Cash (£10,000 x P71) 710,000

Accounts receivable 700,000
Foreign exchange gain 10,000
To recognize settlement of the sale transaction.
nventories were shipped
On November 29, 2020, ABC co. received from a UK-based company a non-cancellable sales order for inventories
with a sale price of £10,000 (pound sterling). The contract term is FOB shipping point. The inventories were shipped
on December 1, 2020. The sale was settled on January 3, 2021

The following are the exchange rates:

November 29, 2020 £0.014925:P1 0.014925

December 1, 2020 £0.014706:P1 0.014706
December 31, 2020 £0.014286:P1 0.014286
January 3, 2020 £0.014085:P1 0.014085

Requirement: Provide the journal entries.

Nov. 29, 2020 No entry

Dec. 1, 2020 Accounts receivable (£10,000 / £0.014706) 680,000

Sale 680,000
To record the sale of inventories on an FOB shipping point term

Dec. 31, 2020 Accounts receivable 20,000

Foreign exchange gain 20,000
To recognize exchange difference

Accounts receivable - December 1, 2020 (£10,000/£0.014706) 680,000

Accounts receivable - December 31, 2020 (£10,000/£0.014286) 700,000
Increase in accounts receivable - FOREX gain 20,000

Jan. 3, 2021 Cash (£10,000/£0.014085) 710,000

Accounts receivable 700,000
Foreign exchange gain 10,000
To recognize settlement of the sale transaction.
rder for inventories
entories were shipped
 Buying spot rates Selling spot rates

$1 = P45 $1 = P50
Currency on hand
Purchase PHP
Sale USD