Activities Chapter 1 - GANPO PDF

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ACTIVITIES The Effects of Changes in Foreign Exchange Rates

1. Barefoot Co. purchased inventory from Nakasakasaka Co., a foreign supplier, on November 15, 20x1 for Y100,000, when the spot rate was PO.4295. On December 31, 20x1, the spot rate was P0.4245. Barefoot Co. settled the account on January 15, 20x2 when the spot rate was P 0.4345. Requirement: Provide the journal entries in 20x1 and 20x2. Solution: Nov. 15, 20x1

Inventory (¥100,000 x ₱0.4295) Accounts payable

Dec. 31, 20x1

Accounts payable Foreign exchange gain

42,950 42,950 500 500

(₱0.4295 - ₱0.4245) x ¥100,000 Jan. 15, 20x2

Accounts payable (₱42,950 - ₱500) Foreign exchange loss (squeeze) Cash in bank (¥100,000 x ₱0.4345)

42,450 1,000 43,450

2. On November 1, 20x1, Pain Co. received a sale order for equipment from Gain Co., a foreign entity, for 300,000 foreign currency units (FCU) when the local currency unit (LCU) equivalent was 96,000 LCUs. Pain shipped the equipment on December 1, 20x1, and billed the customer for 300,000 FCUS when the local currency unit equivalent was 100,000 LCUS. On December 31, 20x1, the local currency unit equivalent of the 300,000 FCUS was 103,000 LCUS. Pain received the payment on January 6, 20x2 when the local currency unit equivalent of the 300,000 FCUS was 105,000 LCUS. Requirement: Provide the journal entries in 20x1 and 20x2. Solution: Nov. 1, 20x1 Dec. 1, 20x1

No entry Accounts receivable Sale

100,000 100,000

Dec. 31, 20x1

Accounts receivable Foreign exchange gain

3,000 3,000

(103,000 – 100,000) Jan. 15, 20x2

Cash in bank (¥100,000 x ₱.4345) Accounts receivable (100K – 3K) Foreign exchange gain

105,000 103,000 2,000

3. Mee Co. acquired inventory from a foreign entity for 100,000 FCUS (foreign currency units). The term is FOB Shipping Point. Relevant information follows: Date Particulars Exchange rates (1FCU to LCUs) Dec. 1, 20x1 Placement of order 13.70 LCUs Dec, 22, 20x1 Date of shipment 13.75 Dec. 31, 20x1 End of reporting period 13.80 Jan. 8,20x2 Settlement date 13.50 Requirements: a. How much accounts payable is initially recognized from the transaction? (13.75 x 100,000) = 1,375,000 b. How much is the foreign exchange gain (loss) is recognized in Mee's 20x1 statement of profit or loss? (13.80 – 13.75) x 100,000 = (5,000) loss c. How much inventory from the transaction is included in Mee's 20x1 statement of financial position? (13.75 x 100,000) = 1,375,000 d. How much accounts payable from the transaction is included in Mee's 20x1 statement of financial position? (13.80 x 100,000) = 1,380,000 e. How much is the foreign exchange gain (loss) is recognized in Mee's 20x2 statement of profit or loss? (13.50 – 13.80) x 100,000 = 30,000 gain f. How much is the total foreign exchange gain (loss) recognized from the transaction? (13.50 – 13.75) x 100,000 = 25,000 gain

4. D 5. D 6. A 7. B

8. A 9. B

10. Requirement: Prepare the consolidated financial statements

Step 1: Analysis of effects of intercompany transaction There are no intercompany transactions in the problem. Step 2: Analysis of net assets Swim Co.

Acquisition date

Consolidation date

(in dollars)

(in dollars)

Net assets at carrying amounts FVA at acquisition date Subsequent depreciation of FVA Net assets at fair value

$9,000 -

$15,000 -

NIL $9,000

$15,000

Net change (in dollars)

$6,000

Step 3: Goodwill computation Formula #1: Consideration transferred Non-controlling interest in the acquiree (9K x 30%) – (Step 2) Previously held equity interest in the acquiree Total Fair value of net identifiable assets acquired (Step 2) Goodwill at acquisition date Accumulated impairment losses since acquisition date Goodwill, net – current year (in dollars) Multiply by: Closing rate Goodwill, net – current year (in pesos)

$10,000 2,700 12,700 (9,000) 3,700 $3,700 45 ₱166,500

Step 4: Non-controlling interest in net assets Sub.'s net assets at fair value – Dec. 31, 20x1 (Step 2 Multiply by: NCI percentage

$15,000 30%

Total

4,500

Add: Goodwill to NCI net of accumulated impairment losses NCI in net assets – Dec. 31, 20x1 (in dollars)

$4,500 ₱45

Multiply by: Closing rate

₱202,500

NCI in net assets – Dec. 31, 20x1 (in pesos)

Step 5: Consolidated retained earnings ₱5,430,000

Parent's retained earnings – Dec. 31, 20x1 Consolidation adjustments: Parent's share in the net change in Sub.'s net assets (a)

₱184,800

Unamortized deferred gain (Downstream only)

-

Gain or loss on extinguishment of bonds

-

Impairment loss on goodwill attributable to Parent Net consolidation adjustments Consolidated retained earnings – Dec. 31, 20x1

92,400 ₱5,614,800...