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FOREX Part1

Problem I summarizes a foreign currency transaction where a Philippine company, KAPUSO Enterprises, purchases equipment from a UAE exporter for 150,000 dirhams on November 1, 2016. KAPUSO is given 90 days to pay, until January 30, 2017. The problem provides the exchange rates on relevant dates and asks to record the journal entries. Problem II summarizes a foreign currency transaction where a Philippine company, KAPAMILYA Corporation, sells merchandise to a Danish importer invoiced at 100,000 kroners to be settled on February 28, 2017. The problem provides the exchange rates on relevant dates and asks to record the journal entries. Problem III summarizes a foreign

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84 views

FOREX Part1

Problem I summarizes a foreign currency transaction where a Philippine company, KAPUSO Enterprises, purchases equipment from a UAE exporter for 150,000 dirhams on November 1, 2016. KAPUSO is given 90 days to pay, until January 30, 2017. The problem provides the exchange rates on relevant dates and asks to record the journal entries. Problem II summarizes a foreign currency transaction where a Philippine company, KAPAMILYA Corporation, sells merchandise to a Danish importer invoiced at 100,000 kroners to be settled on February 28, 2017. The problem provides the exchange rates on relevant dates and asks to record the journal entries. Problem III summarizes a foreign

Uploaded by

lender kent alicante
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Problem I (FOREIGN CURRENCY TRANSACTION-IMPORTATION)

On November 1, 2016, KAPUSO ENTERPRISES whose functional currency is Philippine Peso,


purchases an equipment from a UAE exporter. The company will pay 150,000 dirhams at this date
when the spot rate is P12.3263 per dirham. As is customary in the industry, the foreign seller does
not require immediate payment and allows KAPUSO 90 days to pay for its purchase. The following
are the relevant spot rates at pertinent dates: 11/30/2016-P12.3288; 12/31/2016- P12.3300;
1/30/2017- P12.3416; 2/28/2017-P12.3425. Assume the payment of KAPUSO was made at due date.
Prepare journal entries in the books of KAPUSO for the above foreign currency transaction.

PROBLEM II (FOREIGN CURRENCY TRANSACTION- EXPORTATION)

On December 10, 2016 KAPAMILYA Corporation sold merchandise to a Danish importer invoiced at
100,000 kroners to be settled on 2/28/2017. The following exchange rates are relevant:

12/10/2016 P8.3098
12/31/2016 P8.3365
2/28/2017 P8.2615
Assume the foreign currency transaction was settled by the foreign buyer at due date. Prepare
Journal Entries in the books of KAPAMILYA for the above transaction.

Problem III (HEDGE OF A FCT (PURCHASE) BY A DERIVATIVE FORWARD CONTRACT)

BICOLANDIA COMPANY purchased merchandise from a foreign vendor for FC 100,000. The
merchandise is received on November 1, 2016 payment is due on January 31, 2017. Also, on
November 1, 2016 the company entered into a 90-day forward contract for the purchase of FC
100,000 for delivery on January 31, 2017 as a hedge of the foreign currency transaction. Relevant
exchange rates for the foreign currency follow:

11/01/2016 12/31/2016 1/31/2017


Spot rate P .55 P .56 P .55
30-day forward .56 .58 .57
60-day forward .56 .59 .58
90-day forward .57 .58 .59
Prepare the journal entries of the BICOLANDIA COMPANY for the above transactions.

Problem IV (HEDGE OF A FCT (SALE) BY A NON-DERIVATIVE FORWARD CONTRACT)

ILOCANDIA CORPORATION, a Filipino Company enters into a forward exchange contract on October 1,
2016 to hedge a foreign currency risk in US dollars. The contract is for sale of FC 100,000 to the
international bank for delivery on March 31, 2017. The company anticipates the dollar will weaken
against the peso. Relevant exchange rates for the US dollars are as follows:

10/01/2016 12/31/2016 03/31/2017


Spot rate P46.35 P46.00 P45.60
30-day contract 46.25 45.5 46.00
90-day contract 46.28 45.80 45.60
180-day contract 46.30 43.60 45.00

Problem V (FV HEDGE OF A FOREIGN CURRENCY DENOMINATED COMMITMENT)

On October 1, 2016 Pilipino Corporation entered into a firm commitment with a Japanese Firm to
acquire a machine with delivery and passage of title on March 31, 2017 at a price of 1,000,000 yen.
On the same date, to hedge against risk the company entered into a 180-day forward contract with
bank of PI for 1,000,000 yen. The relevant exchange rates are as follows:

1/1/16 12/31/16 3/31/17


Spot rate P.40 P.41 P.38
Forward rate .425 .41 .38
Prepare all the journal entries on the books of the Pilipino Company for the above transactions.

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