CMU
Enrichment Learning Activity
Name: Date:
Year and Section: Instructor:
Module #: Topic:
Directions:
Use the following information for the next seven questions:
On December 15, 20x1, ABC Co. purchased goods from a Korean firm for 40,000 wons. ABC Co. was concerned about the
fluctuation in the Korean won, so on this date, ABC Co. entered into a 30-day forward contract to buy 40,000 wons for
₱49,600 from a bank at the forward rate of ₱1.24.
Relevant rates are shown below:
Dec. 15, 20x1 Dec. 31, 20x1 Jan. 15, 20x2
Spot rate 1.20 1.26 1.30
Forward rate 1.24 1.27 1.30
1. The purchased inventory shall be recognized at
a. 48,000 b. 49,600 c. 50,400 d. 50,800
2. The derivative asset (liability) to be included in the December 31, 20x1 statement of financial position is
a. 2,400 b. (2,400) c. 1,200 d. (1,200)
3. The adjustment to the inventory account on December 31, 20x1 is – increase (decrease)
a. 2,400 b. (2,400) c. 1,200 d. 0
4. How much is the FOREX gain (loss) on foreign currency transaction on January 15, 20x2?
a. (2,400) b. (1,600) c. 1,200 d. (1,200)
5. How much is the gain (loss) on change in fair value of the derivative on January 15, 20x2?
a. 1,200 b. (1,200) c. 1,600 d. (1,600)
6. The total net effect of the two contracts on profit or loss in 20x2 is – gain (loss)
a. (1,600) b. (400) c. 1,600 d. 0
7. Assuming the forward contract is settled on a net cash basis, how much is the net cash settlement receipt (payment) on
January 15, 20x2?
a. 1,600 b. (400) c. 2,400 d. (2,400)
1. A
Solution:
Hedged item – Hedging instrument –
SY2021-2022 1st Term Homework
CMU
Enrichment Learning Activity
Account payable Forward contract (Derivative)
Dec. 15, 20x1 Dec. 15, 20x1
Inventory……………48,000 No entry
(40K wons x 1.20 spot rate)
Accounts payable…48,000
2. C
Solution:
Hedged item – Hedging instrument –
Account payable Forward contract (Derivative)
Dec. 31, 20x1 Dec. 31, 20x1
FOREX loss………… 2,400 Forward contract (asset).. 1,200
[40K x (1.26 – 1.20)] Gain on forward contract.. 1,200
[(1.27 forward rate – 1.24 forward rate) x
Accounts payable…. 2,400
40K]
3. D
4. B
Solution:
Hedged item – Hedging instrument –
Account payable Forward contract (Derivative)
Jan. 15, 20x2 Jan. 15, 20x2
Accounts payable…….50,400 Cash - foreign currency...52,000
(48K + 2.4K) (40K x 1.30)
FOREX loss…………… 1,600 Cash - local currency….….49,600
[(1.30 -1.26) x 40K] Forward contract (asset)… 1,200
Cash - foreign currency…...52,000 Gain on forward contract.....1,200
[(1.30 – 1.27) x 40K]
to record the payment of 40,000 wons to the to record the purchase of 40,000 wons from
the bank at the pre-agreed purchase price of
SY2021-2022 1st Term Homework
CMU
Enrichment Learning Activity
supplier ₱49,600
5. A (See entries above)
6. B (1,600 loss – 1,200 gain) = 400 net loss (See entries above)
7. C (52,000 debit to cash – 49,600 credit to cash) = 2,400 net cash receipt (See entries above)
SY2021-2022 1st Term Homework
