Chapter 19

(1)

CHAPTER 19

CHAPTER 19 MULT

MULT

IPLE C

HOICES

- CO

MPUTA

TIONAL

1

199--11:: dd..

Direct exchange rate: Direct exchange rate:

D

Deecceemmbbeer r 11 1 1 ÷ ÷ 22..222 2 yyeen n == PP 00..4455 D

Deecceemmbbeer r 3311 1 1 ÷ ÷ 22..770 0 yyeen n = = 00..3377 D

Deeccrreeaasseeiinnffoorreexxrraattee PP 00..0088 F

Foorreex x ggaaiin n ((220000,,00000 0 yyeen n x x PP00..0088)) P P 1166,,000000 1

199--22:: cc.. 

oorreexxrraattee!!DDeecceemmbbeerr11 PP 00..4455 

oorreexxrraattee!!DDeecceemmbbeerr3311 00..4477 ""nnccrreeaasseeiinnffoorreexxrraattee PP 00..0022 F

Foorreex x ggaaiin n ((11,,550000,,00000 0 yyeen n x x PP00..0022)) P P 3300,,000000 1

199--33:: dd..

September 30: September 30: 

oorreexxrraattee!!##ee$$tteemmbbeerr11 PP 55..%%11 

oorreex x rraattee! ! ##ee$$tteemmbbeer r 330 0 55..55&& D

Deeccrreeaasseeiinnffoorreexxrraattee PP 00..0022 F

Foorreex x ggaaiin n ((220000,,00000 0 hhkkgg..$ $ x x PP00..0022)) P P 44,,000000 December 31:

December 31: 

oorreex x rraattee! ! ''ccttoobbeer r 1 1 PP 55..55&& 

oorreexxrraattee!!DDeecceemmbbeerr3300 55..%%22 ""nnccrreeaasseeiinnffoorreexxrraattee PP 00..0033 F

Foorreex x lloosss s ((220000,,00000 0 hhkkgg..$ $ x x PP00..0033) ) P P ((66,,000000)) 1

199--44:: cc..

orex (oss on im$ortation of merchan)ise: orex (oss on im$ortation of merchan)ise: P

Peesso o ee**++ii,,aa((eenntt! ! --aann++aarry y 1100! ! 22001111 P P %%0000!!000000 P

Peesso o ee**++ii,,aa((eenntt! ! $$rrii( ( 2200! ! 2200111 1 %%0088!!000000 

oorreex x ((oosss s //iinnccrreeaassee P /P /88!!000000 orex (oss on notes $ayab(e:

orex (oss on notes $ayab(e: P

Peesso o ee**++ii,,aa((eenntt! ! ##ee$$tteemmbbeer r 11! ! 22001111 P P 33!!000000!!000000 P

Peesso o ee**++i,i,aa(e(ennt! t! DDeecceemmbbeer r 3311! ! 2200111 1 33!!220000!!000000 

oorreex x ((oosss s oon n $rriin$ nccii$$aa(( P P //220000!!000000 )): orex (oss on interest

)): orex (oss on interest 

aassee) ) oon n P P 33!!22000000!!000000 P P 112200!!000000 a

asese) ) on on P P 30300!0!00000!0!00000 0 /P/P3!3!00000!0!00000x0x1010xx441212  10100!0!00000 0 2020!0!00000 

oorreexx((oossss PP //222200!!000000 T

Toottaal l oorreex x lloosss s ((P P 88,,00000 0 ! ! PP222200,,000000) ) P P ((222288,,000000))

123

(2)

19-5: a.

Direct forex rate  ransaction )ate /P 1 ÷ 60.018 P 55.5555 Direct forex rate  a(ance sheet )ate /P 1 ÷ 60.017 58.8235 Direct forex rate  #ett(ement )ate /P 1 ÷ 60.020 50.0000 Forex gain (loss), 2010

ransaction )ate /610!000 x P55.5555 P 555!555 a(ance sheet /610!000 x P 58.8235 588!235 Forex loss (in"rease) P ( 32,680) Forex gain (loss), 2011

a(ance sheet )ate /610!000 x P58.8235 P 588!235 #ett(ement )ata /610!000 x P 50.00 500!000

Forex gain (#e"rease) P 88,235

19-6: b.

)+ste) ,a(+e of acco+nts recei,ab(e! %30 P 315!000

Peso e*+i,a(ent! 727 300!000

orex(oss P /15!000

19-7: a. 2010

orexrate!11510 P 0.42&5

orex rate! 123110 0.4245

Decrease in forex rate P 0.0050

Payab(e in foreign c+rrency 50!000

Forexgain P 250

2011

orexrate!123110 P 0.4245

orex rate! 11511 0.4345

Decrease in forex rate P 0.0100

Payab(e in foreign c+rrency 50!000

Forexloss P (500)

19-8: a. /1000!000  x P 0.85 19-9: c. /50!000  x P 0.%4&8 19-1: b

or9ar)rate!33111 P 0.25

#e((ing s$ot rate! 43011 0.22

Decrease P

0.03

or9ar) contract recei,ab(e 100!000 

(3)

19-11: d.forex gain /(oss on $+rchase commitments is base) on the changes in the for9ar) rates. or9ar) rates  December 31! 2010 P .0055

&0)ayfor9ar)rate .0055

'n December 31! 2010! no changes in for9ar) rates occ+rre)! so no forex gains /(osses are to be recogni;e) on December 31! 2010 +n)er both transactions.

19-12: b.

or9ar) contract recei,ab(e /P100!000 aht x P1.%50 P 1%5!000 #$ot rate /100!000 aht x P1.%00 1%0!000

Forexloss P (5,000)

19-13: d.

Import transaction – Based on spot rates:

123110: orex (oss <1!000!000 rancs x /P%.01  P%.1% P /150!000 Forard !ontract – Based on "orard rates:

123110: orex gain <1!000!000 rancs x /P%.0%  P%.07 P 10!000

et orex loss P (140,000)

19-14: b.

123110: orex gain <65!000 x /P5%.50  P5%.%0 P 500 33110 : orex (oss:

or9ar) contract recei,ab(e /65!000 x P5%.%0 P 283!000

#ett(ement at s$ot rate /65!000 x P5%.32 281!%00 /1!400

et orex loss P (%00)

19-15: a.

Increase in "orard rates:

or9ar) contract recei,ab(e! 11110 /10!000 fc x P.78 P 7!800 or9ar) contract recei,ab(e! 123110 /10!000 fc x P82 8!200

Forexloss P (400)

19-16: a. he forex gain or (oss /changes in for9ar) rates is offset by gain or (oss in firm commitment to $+rchase machinery. he he)ge 9as $erfect.

19-17: 1. a

-+ne 30: 400!000  x /P1.381  P1.370 P/4!400 -+(y 31: 400!000  x /P1.385  P1.381 /1!%00

et orex loss P (6,000)

2. c

-+ne 30: /P2!%00  P1!400 P1!200

-+(y 31: </P1.385  P1.375 x 400!000  P2!%00 1!400

et gain on o&tion P2,600

#ote t$at t$e option $as expired and, t$ere"ore, t$ere is no time %al&e'

(4)

3. a

Do9n $ayment /50!000  x P1.350 P %7!500 a(ance )+e /400!000  x P1.370 548!000

'ostoa"hinery P615,500

19-18: 1. a

F! F!B >+mber of  in commitment:

P54&!%00P1!200 458!000

P2&7!&75P0.%85 435!000

hange in s$ot rate from commitment )ate to ransaction )ate:

P1.200  P1.1%0 P 0.04

P0.%85P0.%&2 P 0.007

ain (loss) on "oitent*

458,000 F'+ x P0.04 P(18,320)

435,000 F' x P0.00- P 3,030 2. a

F! F!B ?ecei,ab(es at s$ot rate at transaction )ate:

458!000  x P1.1%0 P531!280

435!000  x P0.%&2 P301!020 ?ecei,ab(es at s$ot rate at sett(ement )ate:

458!000  x P1.170 535!8%0

435!000  x P0.720 313!200

x"hange gain (loss)* 4,580 12,180 19-19: 1. a

2. d

'o&/tations* Forar#

'ontra"t &tion Prior to transaction )ate:

@ain /(oss on commitment <100!000 x /P1.250  P1.320 P /7!000 P /7!000 @ain /(oss on he)ging instr+ment:

or9ar) contract <100!000 x /P1.320  P1.250 7!000

'$tion <100!000 x /P1.320 s$ot 0 P1.250 striAe 7!000 @ain /(oss exc(+)e) from he)ge effecti,eness:

or9ar) contract <100!000 x P1.270  P1.250 /2!000

'$tion /$remi+m $ai) is a(( time ,a(+e  /1!200 e"t on earnings &rior to transa"tion #ate P (2,000) P (2,100) 19-2: a

120111* +$-0,000P42,000  1.66- +$ to P1.00 123111* +$-0,000P41,000  1.6-% +$ to P1.00 19-21: a !A"7# $ P.57%

19-22: a! he ba(ance 9i(( not change! beca+se it is )enominate) in Phi(i$$ine $eso. 19-23: a

P82!000B?C 400!000 = P.205

he P82!000 is the amo+nt of the $eso $ayab(e to banA. his amo+nt is com$+te) +sing the for9ar) rate.

(5)

P&'b()*+

P&'b()* 19-1

Foreign Foreign '/rren"y '/rren"y +""o/nts +""o/nts Transa"tions Transa"tions e"eiale Payale x"hange 7oss x"hange ain ase 1 > P 1%0!000 /a > P 20!000 /b ase 2 P 38!000  > > P 2!000 /) ase 3 > P 13!500 /e P 1!500 /f > ase 4 P %!250 /g > P 1!250 /h > /a 640!000 x P4.00 /b 640!000 x /P4.00  P4.50 /c 620!000 x P1.&0 /) 620!000 x /P1.&0  P1.80 /e 630!000 x P.45 /f 630!000 x /P.45  P.40 /g 62!500!000 x P.0025 /h 62!500!000 x /P.0025  P.003 P&'b()* 19-2

a. Eay 1 "n,entory /or $+rchases 800!000

cco+nts $ayab(e 800!000

Foreign p&rc$ases denominated in $ilippine pesos'

-+ne 20 cco+nts $ayab(e 800!000

ash 800!000

Settlement'

-+(y 1 cco+nts recei,ab(e 500!000

#a(es 500!000

Foreign sales denominated in $ilippine pesos'

+g+st 10 ash 500!000

cco+nts recei,ab(e 500!000

!ollections'

(6)

roblem 1*+2, contin&ed:

b. Eay 1 "n,entory /or $+rchases 800!000

Foreign p&rc$ases denominated in en: P800!000  P.40 = 2!000!000 yen

-+ne 20 oreign c+rrency transaction (oss 100!000

P&00!000 = 2!000!000 yen x P.45 800!000 = 2!000!000 yen x P.40 P100!000

cco+nts $ayab(e &00!000

ash or foreign c+rrency &00!000 Settlement denominated in en'

-+(y 1 cco+nts recei,ab(e 500!000

#a(es 500!000

Foreign sale denominated in -ong.ong 6 P500!000  P5.20 = &%!154 FAg 6

+g+st 10 cco+nts recei,ab(e 1!&24

oreign c+rrency transaction gain 1!&24 P501!&24 = &%!154 FAg. 6 x P 5.22

500!000 = &%!154 FAg. 6 x P 5.20 P 1!&24

ash or foreign c+rrency 501!&24

cco+nts recei,ab(e 501!&24 !ollections

P&'b()* 19-3

a. >o net ex$os+re bet9een >o,ember 1 an) Earch 1. Eichae(! "nc. has he)ge) its foreign c+rrency $+rchase commitment 9ith a for9ar) contract to recei,e an e*+a( n+mber of foreign c+rrency

+nits.

b. >o,ember 1: or9ar) contract recei,ab(e 3!07%!800

or9ar) contract $ayab(e 3!07%!800 /o record "orard contract at "orard rate:

240!000 ?inggit x P12.82

December 31: orex (oss 4!800

or9ar) contract recei,ab(e 4!800 /o record "orex loss "or t$e decrease in

(7)

roblem 1*+3, contin&ed:

December 31: irm commitment for merchan)ise 4!800

orex gain 4!800

/o record increase in "air %al&e o" t$e &rc$ase commitment, and res&ltant gain or t$e decrease in t$e "orard rate' Earch 1: or9ar) contract $ayab(e 3!07%!800

ash 3!07%!800

/o record settlement o" "orard contract'

ash /240!000 x P12.8% 3!08%!400 orex (oss /240!000 x P.02 4!800

or9ar) contract recei,ab(e 3!0&1!200 /o record receipt o" 20,000 inggit $en

t$e spot rate is 12''

irm commitment for merchan)ise 4!800

orex gain 4!800

/o record c$ange in %al&e o" t$e "irm commitment'

P+rchases /240!000 x P12.82 3!07%!800

irm commitment for merchan)ise &!%00

ash 3!08%!400

/o record p&rc$ases o" merc$andise.

P&'b()* 19-4

-+ne 1: P+rchases 4%0!000

cco+nts $ayab(e 4%0!000

/o record p&rc$ases /G 1!000!000 x P.4%.

or9ar) contract recei,ab(e /fc 480!000

or9ar) contract $ayab(e 480!000 /o record p&rc$ase o" 4 1,000,000 "or deli%er

in 0 das at "orard rate o" ''

-+ne 30: orex (oss 20!000

/o record "orex loss "or t$e increase in spot rate! G 1!000!000 x /P.4%  P.48

or9ar) contract recei,ab(e 20!000

orex gain 20!000

/o record "orex gain "or t$e increase

in "orard rate! G 1!000!000 x /P.48  P.50.

(8)

roblem 1*+, contin&ed: +g+st 1: cco+nts $ayab(e 480!000 orex (oss /G 1!000!000 x P.03 30!000 ash /G 1!000!000 x P.51 510!000 /o record settlement' ash /G 1!000!000 x P.51 510!000 orexgain 10!000

or9ar) contract recei,ab(e 500!000 /o record receipt o" 4 1,000,000 at spot rate

or9ar) contract $ayab(e 480!000

ash 480!000

/o record settlement o" "orard contract' P&'b()* 19-5

December 1: cco+nts recei,ab(e 1!280!000

#a(es 1!280!000

/o record sale /100!000 ?ia( x P12.80.

or9ar) contract recei,ab(e 1!240!000

or9ar) contract $ayab(e /fc 1!240!000 /o record "orard contract to sell 100,000 ial

at a &0)ay for9ar) rate of P12.40.

December 31: orex (oss 10!000

cco+nts recei,ab(e 10!000 /o ad5&st recei%able "or t$e decrease in spot rate

and record "orex loss, 100,000 ial x (12'0 –  12'60)'

orex (oss 20!000

or9ar) contract $ayab(e / 20!000 /o record "orex gain "or t$e increase in "orard rate,

100,000 ial x (12'0 – 12'0)'

Earch 1: ash 1!2&0!000

orex gain/100!000 ?ia( x P.20 20!000 cco+nts recei,ab(e 1!270!000 /o record collection o" acco&nts recei%able at spot rate'

or9ar) contract $ayab(e / 1!2%0!000

orex (oss 30!000

ash /100!000 ?ia( x P12.%0 1!2&0!000 o recor) )e(i,ery of 100!000 ?ia(.

ash 1!240!000

or9ar) contract recei,ab(e 1!240!000 /o record collection "or "orard contract'

(9)

P&'b()* 19-6

'ctober 1: or9ar) contract recei,ab(e 17!400

or9ar) contract $ayab(e /fc 17!400 /15!000 aht x P1.1%

December 31: orex (oss 150

or9ar) contract $ayab(e /fc 150 15!000 aht x /P1.1%  P1.17.

irm commitment for materia(s 150

orex gain 150

/o record increase in "air %al&e o" sales commitment'

$ri(1: ash 17!400

or9ar) contract recei,ab(e 17!400 /o record collection o" "orard contract'

or9ar) contract $ayab(e 17!550

orexgain 150

ash fc /15!000 aht x P1.1% 17!400 /o record deli%er o" 17,000 Ba$t at "orard rate

o" 1'1'

orex(oss 150

irm commitment for materia(s 150 ashfc /15!000 aht x P1.18 17!700

#a(es 17!700

/o record sales' P&'b()* 19-7

'ontra"t 1*

'ctober 1: or9ar) contract recei,ab(e /fc 1%0!000

or9ar) contract $ayab(e 1%0!000 /o record "orard contract to b& 400,000 at 0'

December 31: or9ar) contract recei,ab(e /fc 4!000

orex gain 4!000

/o record "orex gain "or t$e increase in "orard rate o" '01.

$ri( 1: ash /G 400!000 x P.43 172!000

or9ar) contract recei,ab(e /fc 1%4!000

orex gain 2!000

/o record receipt o" 400,000 at spot rate o" '3'

or9ar) contract $ayab(e 1%0!000

ash 1%0!000

/o record pament o" "orard contract .

(10)

roblem 1*+6, contin&ed: 'ontra"t 2*

December 1: or9ar) contract recei,ab(e &!200

or9ar) contract $ayab(e /fc &!200 /o record "orard contract to sell 2 million &pia$

at '00'

December 31: or9ar) contract $ayab(e 200

orex gain 200

/o record "orex gain "or t$e decrease in "orard ate b '0001'

Earch1: ash &!200

or9ar) contract recei,ab(e &!200 /o record settlement o" "orard contract'

or9ar) contract $ayab(e /fc &!000

orex(oss 800

ash &!800

/o record pament o" 2 million &pia$ at spot rate o" '00*'

P&'b()* 19-8

-+ne 1: "n,entory  Hse) I*+i$ment 158!400

o recor) $+rchase of the e*+i$ment /220!000  x P0.720

"n,estment in ca(( o$tion 1!000

ash 1!000

o recor) $+rchase of ca(( o$tion.

cco+nts recei,ab(e 21%!000

#a(es 21%!000

o recor) sa(e of e*+i$ment /300!000  x P0.720

or9ar) contract recei,ab(e  P 218!700

or9ar) contract $ayab(e   218!700 o recor) for9ar) contract to se(( 

/300!000  s P0.72&

-+ne 15: Eemo entry to b+y e*+i$ment

or9ar) contract recei,ab(e   2&2!400

or9ar) contract $ayab(e  P 2&2!400 o recor) for9ar) contract to b+y 

(11)

roblem 1*+, contin&ed:

-+ne 20: "n,entory Hse) I*+i$ment 21!&%0

ash 21!&%0

o recor) recon)itioning the e*+i$ment /30!000  x P0.732

cco+nts recei,ab(e 22%!&20

#a(es 22%!&20

o recor) sa(es of +se) e*+i$ment /310!000  x P0.732

ost of goo)s so() 180!3%0

"n,entory  +se) e*+i$ment 180!3%0 o recor) costs of +se) e*+i$ment

so() /P158!400 J P21!&%0

30: oreign c+rrency /cash 220!500

cco+nts recei,ab(e 21%!000

orex gain 4!500

o sett(e acco+nts recei,ab(e /300!000  x P0.735

Koss on ca(( o$tion 1!800

or9ar) contract $ayab(e   1!800 o recor) change in ,a(+e of the -+ne 1

or9ar) ontract

<300!000  x /P0.735  P0.72&

or9ar) contract $ayab(e   220!500

ash 218!700

oreign c+rrency /cash 220!500 or9ar) contract recei,ab(e  P 218!700 o recor) sett(ement of the -+ne 1 contract

"n,estment in ca(( o$tion 2!200

@ain on ca(( o$tion 2!200 o recor) change in ,a(+e of o$tion

/P3!200  P1!000

Koss on firm commitment 2!388

irm commitment 2!388

o recor) (oss on the commitment /see #che)+(e 1

or9ar) contract recei,ab(e   2!388

orex gain 2!388

o recor) change in ,a(+e of the -+ne 15 or9ar) ontract /see #che)+(e 1

(12)

roblem 1*+, contin&ed: Sc,)d() 1

/ne 15 /ne 30

>+mber of  400!000 400!000

or9ar) rate remaining time  1  P0.731 P0.737 air ,a(+e of origina( contract:

'rigina( for9ar) rate P2&2!400

+rrentfor9ar)rate 2&4!800

@ain /(oss in for9ar) rate P 2!400 Present ,a(+e of the change:

n = 1! " = L /.&&5 x P2!400 P 2!388

P&'b()* 19-9

1. ash/fc 1%8!000

cco+nts recei,ab(e /fc 1%7!000

orexgain 1!000

/o record collection o" 100,000 Ba$t "rom 8&eens !ompan. or9ar) contract $ayab(e /fc 1%7!000

orex(oss 1!000

ash/fc 1%8!000

/o record deli%er o" 100,000 Ba$t in settlement o" t$e "orard contract denominated in Ba$t'

ash 1%4!000

or9ar) contract recei,ab(e 1%4!000 /o record receipt o" $il' esos in settlement o" t$e

"orard contract recei%able'

2. or9ar) contract $ayab(e 7%!000

ash 7%!000

/o record pament o" "orard contract paable'

ash/fc 75!000

orex(oss 500

or9ar) contract recei,ab(e /fc 75!500 /o record collection o" "orard contract recei%able:

/10!000!000 ?+$iah x P.00750

cco+nts $ayab(e /fc 75!500

ash/fc 75!000

orexgain 500

/o record pament o" acco&nts paable to Indon !o' /1!000!000 ?+$iah x P.00750

(13)

P&'b()* 19-1

1. Sc,)d() ' '&/a&d c'0&ac )*+ a )c)*b)& 31# 211: !&rrent assets:

or9ar) contract recei,ab(e /#iam he)ge: in Phi(. $esos P 1%8!000 or9ar) contract recei,ab(e /"n)on he)ge: 10!000!000 x P.0077 77!000 or9ar) contract recei,ab(e /#$ec+(ation in Men: 200!000 x P.%70 134!000 hange in ,a(+e of firm commitment 1!000 !&rrent liabilities:

cco+nts $ayab(e /"n)on acco+nt: 10!000!000 x P.0077 P 77!000 or9ar) contract $ayab(e /#iam he)ge: 100!000 aht x P1.%&0 1%&!000 or9ar) contract $ayab(e /#$ec+(ation in Men: $ayab(e in Phi(. $esos 130!000 2. '&)$ a0 '& ('++ '& 211:

"n)on: P2!000 (oss on acco+nt $ayab(e offset by P2!000 gain on

or9ar) contract recei,ab(e P 

#iam: orex (oss is offset by the change in the ,a(+e of firm

commitment 

#$ec+(ation: he s$ec+(ation is acco+nte) for at the for9ar) rate thro+gho+t the (ife of the contract. herefore! the for9ar) contract recei,ab(e is a)+ste) to P 134!000 /the rate for %0)ay f+t+res at December 31 an) the P4!000 gain is

recogni;e). 4!000

orex gain for 2004 in the income statement P 4!000

Prob(em 1&11

a. Intry to recor) the $+rchase of the ca(( o$tions on >o,ember 30! 2010

a(( '$tions 20!000

ash 20!000

P+rchase ca(( o$tions for 10!000 barre(s of oi( at a $remi+m of P2 $er barre( for Earch 1! 2008. he o$tions are at the money of P30 $er barre(N therefore! the entire

P20!000 is time ,a(+e b. )+sting entry on December 31! 2010:

Koss on ca(( o$tion 14!000

a((o$tions 14!000

?ecor) the )ecrease in the time ,a(+e of the o$tions to c+rrent earnings.

a(( o$tions 10!000

'ther com$rehensi,e income 10!000

(14)

?ecor) the increase in the intrinsic ,a(+e of the o$tions to other com$rehensi,e income. roblem 1*+11, contin&ed:

c. Intries to recor) Earch 1! 2011! ex$iration of o$tions! the sa(es of o$tion! an) the $+rchase of oi(.

Koss on ca(( o$tion %!000

a((o$tions %!000

?ecor) the )ecrease in the time ,a(+e of the o$tions to c+rrent earnings. he o$tions ha,e ex$ire).

a(( o$tions 20!000

'ther com$rehensi,e income 20!000

?ecor) the increase in the intrinsic ,a(+e of the o$tions to other com$rehensi,e income.

ash 30!000

a((o$tions 30!000

?ecor) the sa(e of the ca(( o$tions.

'i( in,entory 330!000

ash 330!000

?ecor) the $+rchase of 10!000 barre(s of oi( at the s$ot $rice of P33 $er barre(.

). -+ne 1! 2011! entries to recor) the sa(e of the oi( an) other entries:

ash 340!000

#a(es 340!000

?ecor) the sa(e of 10!000 barre(s of oi( at P34 $er barre(

ost of goo)s so() 330!000

'i(in,entory 330!000

?ecogni;e the cost of the oi( so().

'" 30!000

ost of goo)s so() 30!000

?ec(assify into earnings the other com$rehensi,e income from the cash f(o9 he)ge.

(15)