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Filipinas, Inc.

agreed to purchase merchandise from a foreign


vendor on November 30, 2003. The goods will arrive on January
31, 2003 and payment of 100,000 FC is due February 28, 2004.
On November 30, 2003 Filipinas signed an agreement with a
foreign exchange broker to buy 100,000 FC on February 28, 2004.
Exchange rates to purchase 1FC are as follows:
Nov. 30, 2003 Dec. 31, 2003 Jan. 31, 2004 Feb. 28, 2004
Spot P1.64 P1.62 P1.59 P1.57
30-day 1.64 1.59 1.60 1.59
60-day 1.63 1.56 1.58 1.58
90-day 1.65 1.62 1.60 1.50
Because of this commitment hedge, Filipinas, Inc. will record the
merchandise at what value when it arrives in January?
P164,000
Jimm, Inc. agreed to purchase merchandise from a foreign vendor
on November 30, 2003. The goods will arrive on January 31, 2004
and payment of 100,000 FC is due February 28, 2004. On
November 30, 2003, Jimm signed an agreement with a foreign
exchange broker to buy 100,000 FC on February 28, 2004.
Exchange rates to purchase 1FC are as follows:
Nov. 30, 2003 Dec. 31, 2003 Jan. 31, 2004 Feb. 28, 2004
Spot P1.65 P1.62 P1.59 P1.57
30-day P1.64 P1.59 P1.60 P1.59
60 day P1.63 P1.56 P1.58 P1.58
Because of this commitment hedge, Jimm, Inc. will record the
merchandise at what value when it arrives in January?
P165,000
100,000 Swiss Francs from its Swiss supplier payable within 30
days under an open account arrangement. Blite is sued a 30-day
6% note payable in Swiss Francs. On July 15, 2003 Blite paid the
note in full. The following information on spot rates (Peso/Swiss
Franc)are provided:

Buying Selling
June 15, 2003 P24.03 P24.15
July 15, 2003 24.10 24.22
Calculate for (1) foreign exchange gain/loss for
the transaction and (2) the peso equivalent of
Blite’s payment on July 15, 2003.
(1) (P7,035) and P2,434,110
Company. The purchase would probably occur on November 2 and require the payment of 2,340,000
taka. It is anticipated that the inventory could be further processed and delivered to customers by early
December. On August 1, the company purchased a call option to buy 2,340,000 taka at a strike price of
1FC = P7.95. An option premium of P8,850 was paid. Changes in the value of the option will be
excluded from the assessment of hedge effectiveness.

Spot rates and option values are as follows:

Aug 1 Aug 31 Sep 30 Nov 2


Spot rate P7.93 P7.952 P7.963 P7.97
Fair value of call P8,850 P15,690 P34,410 P46,800
option
On November 2, EFG Company purchased 60,000 units of inventory at a cost of P2,376,000 taka. The
option was settled/sold on November 2 at its fair vale. After incurring further processing costs of
P240,000, the inventory was sold for P29,400,000 on December 7.

The foreign exchange gain/loss on option contract on August 31 that would affect earnings?
P2,160gain
Company. The purchase would probably occur on November 2 and require the payment of 2,340,000
taka. It is anticipated that the inventory could be further processed and delivered to customers by early
December. On August 1, the company purchased a call option to buy 2,340,000 taka at a strike price of
1FC = P7.95. An option premium of P8,850 was paid. Changes in the value of the option will be
excluded from the assessment of hedge effectiveness.

Spot rates and option values are as follows:

Aug 1 Aug 31 Sep 30 Nov 2


Spot rate P7.93 P7.952 P7.963 P7.97
Fair value of call P8,850 P15,690 P34,410 P46,800
option
On November 2, EFG Company purchased 60,000 units of inventory at a cost of P2,376,000 taka. The
option was settled/sold on November 2 at its fair vale. After incurring further processing costs of
P240,000, the inventory was sold for P29,400,000 on December 7.
The foreign exchange gain/loss on option contract on September 30 that would affect other
comprehensive income?
P30,420 gain
On August 1, EFG Company forecasted the purchase of P60,000 units of inventory from Bangladesh
Company. The purchase would probably occur on November 2 and require the payment of 2,340,000
taka. It is anticipated that the inventory could be further processed and delivered to customers by early
December. On August 1, the company purchased a call option to buy 2,340,000 taka at a strike price of
1FC = P7.95. An option premium of P8,850 was paid. Changes in the value of the option will be
excluded from the assessment of hedge effectiveness.

Spot rates and option values are as follows:

Aug 1 Aug 31 Sep 30 Nov 2


Spot rate P7.93 P7.952 P7.963 P7.97
Fair value of call P8,850 P15,690 P34,410 P46,800
option

On November 2, EFG Company purchased 60,000 units of inventory at a cost of P2,376,000 taka. The
option was settled/sold on November 2 at its fair vale. After incurring further processing costs of
P240,000, the inventory was sold for P29,400,000 on December 7.
The foreign exchange gain/loss on option contract on November 2 that would affect earnings:
P3,990 loss
Company. The purchase would probably occur on November 2 and require the payment of 2,340,000
taka. It is anticipated that the inventory could be further processed and delivered to customers by early
December. On August 1, the company purchased a call option to buy 2,340,000 taka at a strike price of
1FC = P7.95. An option premium of P8,850 was paid. Changes in the value of the option will be
excluded from the assessment of hedge effectiveness.

Spot rates and option values are as follows:

Aug 1 Aug 31 Sep 30 Nov 2


Spot rate P7.93 P7.952 P7.963 P7.97
Fair value of call P8,850 P15,690 P34,410 P46,800
option
On November 2, EFG Company purchased 60,000 units of inventory at a cost of P2,376,000 taka. The
option was settled/sold on November 2 at its fair vale. After incurring further processing costs of
P240,000, the inventory was sold for P29,400,000 on December 7.
The cost of sales assuming the other comprehensive income account be closed to cost of sales account
on December 7:
P19,129,920
Company. The purchase would probably occur on November 2 and require the payment of 2,340,000
taka. It is anticipated that the inventory could be further processed and delivered to customers by early
December. On August 1, the company purchased a call option to buy 2,340,000 taka at a strike price of
1FC = P7.95. An option premium of P8,850 was paid. Changes in the value of the option will be
excluded from the assessment of hedge effectiveness.

Spot rates and option values are as follows:

Aug 1 Aug 31 Sep 30 Nov 2


Spot rate P7.93 P7.952 P7.963 P7.97
Fair value of call P8,850 P15,690 P34,410 P46,800
option

On November 2, EFG Company purchased 60,000 units of inventory at a cost of P2,376,000 taka. The
option was settled/sold on November 2 at its fair vale. After incurring further processing costs of
P240,000, the inventory was sold for P29,400,000 on December 7.
What is the net income effect of the above transactions? Increase of:
P10,261,230
R Company acquired machinery for 169,200 lira from a vendor in Turkey on December 1, 2011.
Payment in Turkey lira was due on March 31, 2012. On the same date, to hedge this foreign
currency exposure, R entered into a futures contract to purchase 169,200 lira from a bank for
delivery on March 31, 2012. Exchange rates for pounds on different dates are as follows:

December 1 December 31 March 31


Strike price P41.5 P41.5 P41.5
Buying spot rate 41.6 42.5 43.4
Selling spot rate 41.4 42.3 43.7
30 day futures 42.3 41.8 43.2
60 day futures 41.8 42.2 42.6
90 day futures 40.6 42.5 43.4
120 day futures 42.2 42.8 42.9

1. What amount is the capitalizable cost of the machinery? P7,004,880 P236,880 loss
2. How much is the foreign gain/loss due to hedged item in the 2012 profit and loss statement?
3. What is the reported value of the payable to the vendor at December 31, 2011? P7,157,160
currency exposure, R entered into a futures contract to purchase 169,200 lira from a bank for
delivery on March 31, 2012. Exchange rates for pounds on different dates are as follows:

December 1 December 31 March 31


Strike price P41.5 P41.5 P41.5
Buying spot rate 41.6 42.5 43.4
Selling spot rate 41.4 42.3 43.7
30 day futures 42.3 41.8 43.2
60 day futures 41.8 42.2 42.6
90 day futures 40.6 42.5 43.4
120 day futures 42.2 42.8 42.9
4. How much is the foreign gain/loss due to hedging instrument in the
December 31, 2011 profit and loss statement?
5. What is the balance of the Forward Contract Receivable account as
of December 31, 2011? P50,760 gain P7,191,000
6. What was the net impact in R Company’s income in 2011 as a
result of this hedging? P101,520 loss