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Foreign Currency Sample Exercises

The document contains a series of examples and exercises related to foreign currency transactions, illustrating how to calculate foreign exchange gains or losses based on varying exchange rates at different dates. It includes multiple scenarios involving sales, purchases, and royalties, along with corresponding answers to each exercise. The document serves as a practical guide for understanding the impact of exchange rate fluctuations on financial reporting.

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4 views23 pages

Foreign Currency Sample Exercises

The document contains a series of examples and exercises related to foreign currency transactions, illustrating how to calculate foreign exchange gains or losses based on varying exchange rates at different dates. It includes multiple scenarios involving sales, purchases, and royalties, along with corresponding answers to each exercise. The document serves as a practical guide for understanding the impact of exchange rate fluctuations on financial reporting.

Uploaded by

deasarovieanne03
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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SAMPLE EXERCISES

FOREIGN CURRENCY TRANSACTIONS


• On September 1, 2009, Cano & Co. sold
merchandise to a foreign firm for 250,000 francs.
• Term of the sale require payment in francs on
February 1, 2010. On September 1, 2009, the
spot exchange rate was P1.20 per franc.
EXAMPLE • At December 31, 2009, Cano’s year-ended the
1: spot rate was P1.19, but the rate increased to
P1.22 by February 1, 2010, when payment was
received.
• How much should Cano report as foreign
exchange transaction gain or loss in its 2010
income statement?
ANSWER
• How much should Cano report as foreign exchange transaction gain or
loss in its 2010 income statement?
• a. 0
• b. 2, 500 loss
• c. 5, 000 gain
• d. 7, 500 gain

• P1.19 INCREASED TO P1.22 = P.03 X 250,000 francs = P7,500


Example 2:
• Lindy Corp. bought inventory items from a foreign supplier in Japan
on November 15, 2009 for 100,000 yen, when the spot rate was
P0.4295.

• At Lindy’s December 31, 2009, year end, the spot rate was P0.4245. On
January 15, 2010, Lindy bought 100,000 yen at the spot rate of P0.4345
and paid the invoice.

• How much should Lindy report in its income statements of 2009 and
2010 as foreign exchange transaction gain or loss?
ANSWER
• 2009 2010

a.500 (1,000)
b.0 (500)
c.(500) 0
d.(1,000) 500
EXAMPLE 3
• Hizon Holdings, Inc. is a percent company of a group of companies,but also
does in own trading.
• It bought a fixed assets for 36,000 dollars on November 1, 2009, when the
exchange rate was $1.00 –P23.00.
• At December 31, 2009, the company’s year-ended, the supplier of the fixed
assets has not been paid and the exchange rate at the time was $1.00 –
P25.00.
• The company has not taken out forward exchange contract for his payment
as a hedge against adverse exchange rate movements.
• On the balance sheet of Hizon Holdings, Inc. what will be the values
for the fixed asset and the creditor who was unpaid?
ANSWER
• FIXED ASSET CREDITOR

• a. 900, 000 900, 000


• b. 900, 000 828, 000
• c. 828, 000 828, 000
• d. 828, 000 900, 000
EXAMPLE 4
• Filcraft Corp. sold metal crafts to a US firm for $70,000
and pertinent information on exchange conversion rates
related to this transaction were as follows:
Conversion Rate
Peso to US Dollar

• Nov. 4 Receipt of order P27.40


• Nov. 22 Date of shipment 27.50
• Dec. 31 Balance sheet date 27.60
• Jan. 6 Date of collection 27.00
ANSWER
• THE SALE WOULD APPROPRIATELY RECORDED AT

A. P1,890,000 (P27)
B. 1, 918,000 (P27.40)
C. 1,925,000 (P27.50)
D. 1,932,000 (P27.60)
EXAMPLE 5
• If one Taiwanese dollar can be exchanged for P1.025, the fraction for
computing indirect quotation of exchange rate expressed in
Taiwanese currency would be:
ANSWER

• a. 0.975/1.00
• b. 1.00/0.0975
• c. 1.00/1.025
• d. 1.025/1.00
EXAMPLE 6
• Ball Corp. had the following foreign currency transaction during 2009.
• Merchandise was purchased from a foreign supplier on January 20,
2009, for the Philippine peso equivalent of P90, 000. The invoice was
paid on March 20, 2009, at the Philippine peso equivalent of P96, 000.
• On July 1, 2009, Ball barrowed the Philippine peso equivalent of
P500,000 evidenced by a note that was payable in the lender’s local
currency on July 1, 2010.
• On December 31, 2009,the Philippine peso equivalents of the principal
amount and accrued interest were P520,000and P26,000, respectively.
Interest on the note is 10% per annum
ANSWER
• a. 0
• b. 6,000
• c. 21,000
• d. 27,000

• 90,000-96,000 = 6,000
• 10% interest P50,000/2 = P25,000
• Year end interest P26,000 vs P25,000 P1,000
• Promissory note from P500,000 to P520,000 = P20,000
EXAMPLE 7
• On October 1, 2009, a local importer contracted to purchase foreign
goods requiring payment of 100,000 German marks one month after their
receipt at the local importer’s business place.
• Title to the goods passed on the date of shipment on December 1, 2009. On
December 31, 2009, the goods were still in transit.
• The following exchange rates were made available:
• October 1, 2009 P 22.00
• December 1, 2009 20.00
• December 31, 2009 26.00

• How should the exchange fluctuation in 2009 be accounted by this local


importer?
ANSWER
• Transaction Gain (loss) Transaction adjustment

• a. (400,000) 0
• b. 600,000 200,000
• c. (600,000) 200,000
• d.(600,000) 0

• Dec 31 P26.00 X 100,000 = P2,600,000


• Dec 1 P20.00 x 100,000 = P2,000,000
EXAMPLE 8
• On November 30, 2008 Tyrola Publishing Co. located in Manila,
executed a contract with Ernest Blyton, as author from Canada,
providing for payment of 10% royalties on Canadian sales of Blyton’s
book.
• Payments are to be made in Canadian dollars each January 10 for the
previous year’s sales.
• Canadian sales of the book for the year ended December 31, 2009
totalled $50,000 Canadian dollars.
• Tyrola paid Blyton his 2009 royalties on January 10, 2010.
• Tyrola’s 2009 financial statements were issued on February 1, 2010.
EXAMPLE 8
• . Spot rates for Canadian dollars were as follows:

• November 30, 2008 P27.87


• January 1, 2009 27.88
• December 31, 2009 27.89
• January 10, 2010 27.90

• How much should Tyrola accrued for royalties payable at


December 31, 2009?
ANSWER
• a. 139,350
• b. 139,500
• c. 139,450
• d. 139,500

• $50,000 x 10% = $5,000 x 27.89 (Dec 31 rate) = P139,450


Example 9
• Hunt Co. purchased merchandise for 300,000 francs from a vender
in Belgium on November 30,2009. Payment in Belgium francs was
due on January 30, 2010. The exchange note to purchase one franc
were as follows:
• Nov 30 Dec 31
• Spot rate P1.65 P1.62
• 30-day rate 1.64 1.59
• 60-day rate 1.63 1.56
• In its December 31, 2009, income statement, what
amount should Hunt report as foreign exchange gain?
ANSWER
• A. 12,000
• B. 9,000
• C. 6,000
• D. 0

• 300,000 X P 1.65 = P495,000


• 300,000 X P 1.62 = P 486,000
• P 9,000
EXAMPLE 10
• Paris Co. a wholly-owned subsidiary of Filipino Corp. is located in
France. In 2009, Filipino Corp. borrowed French francs as a partial
hedge of its investment in Paris Co. on December 31, 2009, in the
preparation of consolidated financial statements. Filipino Corp’s
translation loss on its investment in the subsidiary amounted to
P500,000, while its exchange gain on the borrowing amounted to
P300,000

• What amount of gain or loss should Filipino Corp. report in


consolidated income statement and balance sheet?
ANSWER
• Income statement balance sheet
• . (500,000) 300,000

• b. 300,000 (500,000)

• c. 0 (200,000)

• d. (200,000) 0
END OF
LECTURE

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