Lecture:

Multiple Choice Questions:

Part I: Theory of Accounts

1. Under PAS 21, what is the subsequent measurement of monetary items?

a. Closing rate b. Transaction rate c. Average rate d. Monthly rate

2. Under PAS 21, what is the initial measurement of foreign currency denominated transaction?

a. Both monetary and nonmonetary items are measurement initially at transaction or historical rate.

b. Monetary items are measured at closing rate while nonmonetary items are measured at transaction
rate.

c. Monetary items are measured at transaction rate while nonmonetary items are measured at closing
rate.

d. Both monetary and nonmonetary items are measurement initially at closing rate.

3. Under PAS 21, what is the subsequent measurement of nonmonetary items?

a. Closing rate b. Transaction rate c. Average rate d. Monthly rate

4. Under PAS 21, which of the following statements pertains to functional currency?
a. It refers to the currency of the primary economic environment in which the entity operates.

b. It refers to the currency in which the financial statements are presented.

c. It refers to the currency other than the functional currency of the entity.

d. It refers to the type of currency in a given jurisdiction which a creditor may be compelled to accept.

5. Which of the following items will result to foreign currency transaction gain/loss due to settlement or
translation?

a. Foreign currency denominated income statement accounts such as revenue, income, expense or loss.

b. Foreign currency denominated non-monetary assets such as inventory, PPE, intangible asset or
prepaid asset.

c. Foreign currency denominated monetary items such as accounts payable, accounts receivable, notes
payable, loans receivable or interest payable.

d. Foreign currency denominated non-monetary liabilities such as unearned revenue, warranty liability,
premium liability and deferred tax liability.

e. Foreign currency denominated equity accounts such as ordinary shares, preference shares, treasury
shares and share premium.

6. Which of the following statements concerning exchange differences arising from entity’s net
investment in foreign operation is correct?

a. Exchange differences arising on a monetary item that forms part of a reporting entity’s net investment
in a foreign operation shall be recognized in profit or loss in the separate financial statement of the
reporting entity or the individual financial statements of the foreign operation, as appropriate.

b. In the consolidated financial statements of the reporting entity which includes that of a foreign
operation which is a subsidiary, the exchange differences shall be recognized initially in other
comprehensive income.

c. On the disposal of foreign operation, the cumulative amount of the exchange differences relating to
foreign operation, recognized in other comprehensive income and accumulated in separate component
of equity shall be reclassified from equity/cumulative OCI to profit or loss as reclassification adjustment
when the gain or loss on disposal is recognized.

d. All of the above

7. On October 1, 2009, Velec Co. contracted to purchase foreign goods requiring payment in local current
units (LCU) one month after the receipt of the goods at Velec's factory. Title to the goods passed on
December 15, 2009. The goods were still in transit on December 31, 2009. Exchange rates were one peso
to 22 LCUs, 20 LCUs, and 21 LCUs on October 1, December 15, and December 31, 2009, respectively.
Velec should account for the exchange rate fluctuation in 2009 as

a. An ordinary loss included in net income.

c. An extraordinary gain.

d. An extraordinary loss.

8. In preparing consolidated financial statements of a Philippine parent company with a foreign

a. In which the subsidiary maintains its accounting records.

b. Of the country in which the subsidiary is located.

c. Of the country in which the parent is located.

d. Of the environment in which the subsidiary primarily generates and expends cash.

9. A foreign subsidiary's functional currency is its local currency, which has not experienced significant
inflation. The weighted average exchange rate for the current year is the appropriate exchange rate for
translating Wages expenses Sales to customers

A. Yes No B. Yes Yes C. No Yes D. No No

10. According to PAS 21, The Effects of Changes in Foreign Exchange Rates, exchange differences should
be recognized either in profit or loss or in other comprehensive income. Are the following statements
about the recognition of exchange differences in respect of foreign currency transaction reported in an
entity's functional currency TRUE or FALSE?

1. An exchange difference on the settlement of a monetary item should be recognized in profit or loss.

2. Any exchange difference on the translation of a monetary item at a rate different to that used at initial
recognition should be recognized in other comprehensive income.

Statement 1 Statement 2
A. False False
B. False True
C. True False
D. True True

Part II: Problems

1. On December 31,2025 a foreign subsidiary in Hongkong submitted the following condensed statement
of financial position stated in foreign currency:

Hongkong Dollar
Total assets $100,000
Total liabilities 20,000
Common stock 50,000
Retained earnings, 12/31 30,000
The exchange rates are:
 Current rate P7.40
Historical rate P7.10
Weighted average rate P7.00

Assuming that the retained earnings of the subsidiary on December 31, 2025 translated to Philippine
Peso is P212,000.

What amount of Cumulative Translation Adjustment is to be reported as other comprehensive income

a. P25,000 b. P 2,000 c. P20,000 d. P22,000

Items 2 to 4 are based on the following data: On July 1, 2024, Pedro Company purchased 1,000 shares of
Jenny Co. common stock at a cost of P150 per share per share and classified it as an available for sale
security. On October 1, Pedro Company purchased an at-the-money put option on Jenny at a premium of
P35,000 with a strike price of P250 per share and an expiration date of April 2025. Pedro Company
specifies that only the intrinsic value of the option is to be used to measure effectiveness. Thus, the time
value decreases of the put will be charged against the income of the period, and not offset against the
change in value of the underlying, hedged item. The following shows the fair value of the hedged item
and the hedging instrument.

10/1/2024 12/31/2024 3/3/2025 4/17/2025

2. On December 31,2013, how much is the value of the put option to be presented on the statement of
financial position?

a. P51,500 b. P35,000 c. P30,000 d. P25,000

3. What is the cumulative effect on retained earnings of the hedge and sale?

a. P65,000 b. P 60,000 c. P 50,000 d. P55,000

4. What is the entry to record the exercise of the put option on April 17, 2025?

a. Cash 250,000
Put option 250,000
b. Cash 250,000
 Available-for-sale securities 100,000
Put option 50,000
Gain on sale of securities 100,000
c. Cash 200,000
Available-for-sale securities 50,000
Put option 50,000
Gain on sale of securities 100,000
d. Cash 200,000
Put option 50,000
Available-for-sale securities 100,000
Gain on sale of securities 50,000

5. Post, Inc., had a credit translation adjustment of P30.000 for the year ended December 31,2024. The
functional currency of Post's subsidiary is the currency of the country in which it is located. Additionally,
Post had a receivable from a foreign customer payable in the local currency of the customer. On
December 31, 2023, this receivable for 200,000 local currency units (LCU) was correctly included in
Post's balance sheet at PI 10,000. When the receivable was collected on February 15, 2024, the
Philippine peso equivalent was PI20,000. In Post's 2024 consolidated income statement, how much
should be reported as foreign exchange gain?
a. 0 b. 10,000 c. 30,000 d. 40,000

6. Connie Corp. had a realized foreign exchange loss of P15,000 for the year ended December 31,2024
and must also determine whether the following items will require year-end adjustment:
• Connie had an P8,000 loss .resulting from the translation of the accounts of its wholly owned
foreign subsidiary for the year ended December 31,2024.
• Connie had an account payable to an unrelated foreign supplier payable in the supplier's local
currency. The Philippine peso equivalent of the payable was P64,000 on the October 31, 2024 invoice
date, and it was P60.000 on December 31, 2024. The invoice is payable on January 30, 2025.

In Connie's 2024 consolidated income statement, what amount should be included as foreign exchange
loss?
a. 11,000 b. 15,000 c. 19,000 d. 23,000

7. An entity acquires a foreign subsidiary on August 15, 2024. The goodwill arising on the acquisition is
400,000 baht. At the date of acquisition the exchange rate into the parent's functional currency is 4 baht:
PI. At the parent entity's year end the exchange rate3 is 4 baht: P1. The exchange loss at year-end
amounted to:
a. Nil or zero b. 20,000loss c. 20,000gain d. Cannot be determined

8. 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?
Income statement Balance sheet
A. (500,000) 300,000
B. 300,000 (500,000)
C. 0 (200,000)
D. (200,000) 0

9. Fay Corp. had a realized foreign exchange loss of PI5,000 for the year ended December 31, 2024 and
must also determine whether the following items will require year-end adjustment:
• Fay had P8,000 loss resulting from the translation of the accounts of its wholly owned foreign
subsidiary for the year ended December 31, 2024.
• Fay had an account payable to an unrelated foreign supplier payable in the supplier's local
currency. The Philippine peso equivalent of the payable was P64,000 on the October 31, 2024 invoice
date, and it was P60,000 on December 31, 2024. The invoice is payable on January 30, 2025.

In Fay's 2024 consolidated income statement, what amount should be included as foreign exchange loss?

a. 11,000 b. 15,000 c. 19,000 d. 23,000

10. On November 15, 2024, Celt, Inc., a Philippine Company, ordered merchandise FOB shipping point
from Japanese Company for 200,000 yens. The merchandise was shipped and invoiced to Celt on
December 10,2024. Celt paid the invoice on January 10, 2025. The spot rates for yens on the respective
dates are as follows:
November 15,2024 P.4955
December 10,2024 4875
December 31,2024 4675
January10,2025 4475
In Celt's December 31,2024 income statement, the foreign exchange gain is:
a. 9,600 b. 8,000 c. 4,000 d. 1,600

END