Chapter 21

Problem I
1. Functional Currency Is the Local Currency Unit Translation Into the Presentation
Currency (Current/Closing Rate Method)
Functional Currency
Is Local Currency Unit US Dollars
Translation into the Presentation Currency (Current/Closing Rate Method)
Combined Statement of Income and
Retained Earnings
Sales
Cost of goods sold
Depreciation expense
Other expenses
Income tax expense
Net Income to Retained Earnings
Retained earnings, 1/1
Total
Less: Dividends declared, 9/1/20x4
Retained earnings, 12/31 to Balance Sheet
Balance Sheet
Cash.
Accounts receivable (net)
Inventory (FIFO)
Land.
Buildings (net)
Equipment (net)
Total

Adjusted Trial
Balance ($)

Translation
Exchange
Rate

3,624,000
2,220,000
120,000
786,000
98,400
399,600
576,000
975,600
360,000
615,600

(A)
(A)
(A)
(A)
(A)

40.20
40.20
40.20
40.20
40.20

(H)

40.10

1,116,000
729,600
996,000
600,000
780,000
516,000

(C)
(C)
(C)
(C)
(C)
(C)

40.25
40.25
40.25
40.25
40.25
40.25

(1)

4,737,600

Adjusted Trial
Balance
(Pesos)

145,684,800
89,244,000
4,824,000
31,597,200
3,955,680
16,063,920
23,040,000
39,103,920
14,436,000
24,667,920
44,919,000
29,366,400
40,089,000
24,150,000
31,395,000
20,769,000
190,688,400

Accounts payable
768,000
(C)
40.25
30,912,000
Short-term notes payable
762,000
(C)
40.25
30,670,500
Bonds payable
1,080,000
(C)
40.25
43,470,000
Common stock, P10 par
1,152,000
(H)
40.00
46,080,000
Paid-in capital in excess of par
360,000
(H)
40.00
14,400,000
Retained earnings, from above
_ 615,600
24,667,920
Total
4,737,600
190,200,420
Foreign Currency Translation Reserve Gain OCI)
credit
_________
B/A
487,980
Total
4,737,600
190,688,400
*Include as a component of other comprehensive income
(1) Retained earnings in pesos on January 2 (date of acquisition)
(A) Average exchange rate used to approximate the rate on the date these elements were recognized.
(H) Historical exchange rate
(C) Current exchange rate
(5) B/A balancing amount

Verification of the Translation Adjustment Current/Closing Rate Method (Functional

Currency US Dollars)

1/2 Exposed net asset position

Adjustments for changes in net asset position
during year:
Net income for year.

US $
*2,088,000
399,600

Translation
Exchange
Rate
40.00
40.20

Reporting
Currency
(Pesos)
83,520,000
16,063,920

Dividends declared.
Net asset position translated using rate in
effect at date of each transaction..
12/31 Exposed net asset position.
Change in cumulative translation adjustment
during yearnet increase.
1/2 Cumulative translation adjustment**.
12/31 Cumulative translation adjustment..

(360,000)

40.10

( 14,436,000)

2,127,600

40.25

85,147,920
85,635,900
487,980
-0487,980

*A condensed balance sheet for S Company on January 2, 20x4 was as follows:

US $
Monetary assets
1,320,000 Monetary Liabilities
Nonmonetary assets
Common stock
Inventory
912,000 Paid-in capital in excess of par
Fixed assets
2,016,000 Retained earnings
Total
4,248,000
Total
1/1 Net assets = $4,248,000 - $2,160,000 = 2,088,000
**the beginning balance is zero since this was the first year the investment was held.

US $
2,160,000
1,152,000
360,000
576,000
4,248,000

Statement of Comprehensive Income and Statement of Shareholders Equity

Functional Currency
Is Local Currency Unit US$
Translation into the Presentation Currency (Current/Closing Rate Method)

S Company
Statement of Comprehensive Income
For the Year Ended
December 31, 20x4
Net income
Other comprehensive income:
Foreign currency translation reserve gain..
Comprehensive Income.

P16,063,920
487,980
P16,055,100

S Company
Statement of Shareholders Equity
For the Year Ended
December 31, 20x4

Balance, 1/1/20x4
Comprehensive Income:
Net income
Other comprehensive
Income
Comprehensive Income
Dividends declared
Balance, 12/31/20x4

Common
Stock
P46,080,000

Paid-in
capital in
excess of
par
P14,400,000

Retained
Earnings
P23,040,000

OCI*

16,063,920

16,063,920
487,980

_______
P46,080,000

*OCI other comprehensive income

___________
P14,400,000

(14,436,000)
P24,667,920

Total
P83,520,000

________
P 487,980

2. Translation into the Functional Currency (Remeasurement or Temporal Method)

487,980
P100,071,900
(14,436,000)
P85,635,900

Functional Currency
Is Philippine Peso Translation into the Functional Currency (Remeasurement or Temporal Method)
Balance Sheet
Cash.
Accounts receivable (net)
Inventory (FIFO)
Land.
Buildings (net)
Equipment (net)
Total
Accounts payable
Short-term notes payable
Bonds payable
Common stock, P10 par
Paid-in capital in excess of par
Retained earnings
Total

Combined Statement of Income and

Retained Earnings

Adjusted
Trial
Balance ($)

1,116,000
729,600
996,000
600,000
780,000
516,000

(C)
(C)
(H)
(H)
(H)

Remeasurement
Exchange
Rate
40.25
40.25
Schedule
40.00
40.00
40.00

4,737,600

Adjusted
Trial Balance
(Pesos)

44,919,000
29,366,400
40,059,120
24,000,000
31,200,000
20,640,000

190,184,520

768,000
762,000
1,080,000
1,152,000
360,000
_ 615,600
4,737,600

(C)
(C)
(C)
(H)
(H)

40.25
40.25
40.25
40.00
40.00
(B/A)

30,912,000
30,670,500
43,470,000
46,080,000
14,400,000
24,652,020
190,184,520

Sales
3,624,000
(A)
40.20
145,684,800
Cost of goods sold
2,220,000
Schedule
89,041,680
Depreciation expense
120,000
(H)
40.00
4,800,000
Other expenses
786,000
(A)
40.20
31,597,200
Income tax expense
98,400
(A)
40.20
__3,955,680
Net income before remeasurement loss
16,290,240
Remeasurement loss - debit
0
___242,220
Net Income to Retained Earnings
399,600
16,048,020
Retained earnings, 1/1
576,000
(1)
23,040,000
Total
975,600
39,088,020
Less: Dividends declared, 9/1/20x4
360,000
(H)
40.10
14,436,000
Retained earnings, 12/31 from balance sheet
615,600
24,652,020
*Include as a component of other comprehensive income
(1) Retained earnings in pesos on January 2 (date of acquisition)
(A) Average exchange rate used to approximate the rate on the date these elements were recognized.
(H) Historical exchange rate
(C) Current exchange rate
B/A balancing amount
Schedule
Translation of Cost of Goods Sold

Accounts
Beginning inventory (assumed).
Purchases (assumed)..
Total..
Less: Ending inventory.
Cost of goods sold

($)
912,000
2,304,000
3,216,000
996,000
2,220,000

(H)
(A)
(A)

Remeasurement
Exchange
Rate
40.00
40.20
40.22

Pesos
36,480,000
92,620,800
129,100,800
40,059,120
89,041,680

Verification of the Translation Adjustment Remeasurement or Temporal Method

(Functional Currency Philippine Peso)
US $

Translation
Exchange
Rate

Reporting
Currency
(Pesos)

1/2 Exposed net monetary liability position..

Adjustments for changes in net monetary position
during year:
Less: Increase in cash and receivables from sales
Add: Decrease in monetary assets or increase in
monetary liabilities:
Purchases
Other expenses
Income taxes
Dividends declared..
Net monetary liability position translated using rate
in effect at date of each transaction..
Less: 12/31 Exposed net monetary liability position
Remeasurement gain (loss)

*840,000

40.00

33,600,000

(3,624,000)

40.20

145,684,800

2,304,000
786,000
98,400
360,000

40.20
40.20
40.20
40.10

92,620,800
31,597,200
3,955,680
14,436,000

**764,400

40.25

30,524,880
30,767,100
( 242,220)

*The January 2, 20x4 condensed balance sheet is given in Figure 19-3:

US $
2,160,000
1,320,000
840,000

Monetary liabilities
Less: Monetary assets

Net monetary liability position..

**See above:

US $
2,610,000
1,845,600
764,400

Monetary liabilities (768,000 + 762,000 + 1,080,000)

Less: Monetary assets (1,116,000 + 729,600)

Net monetary liability position..

3. Translation Using a Trial Balance Approach

Translation into the Presentation Currency (Current/Closing Rate Method)
Functional Currency
Is Local Currency Unit US Dollars
Translation into the Presentation Currency (Current/Closing Rate Method)
Accounts
Sales
Cost of goods sold
Depreciation expense
Other expenses
Income tax expense
Retained earnings, 1/1
Dividends declared, 9/1
Cash.
Accounts receivable (net)
Inventory (FIFO), 12/31
Land
Buildings (net)
Equipment (net)
Accounts payable
Short-term notes payable
Bonds payable
Common stock, P10 par
Paid-in capital in excess of par
Sub-totals
Foreign Currency Translation
Reserve Gain OCI) credit
Totals

Adjusted Trial
Balance ($)
Debit
Credit

2,220,000
120,000
786,000
98,400
360,000
1,116,000
729,600
996,000
600,000
780,000
516,000

3,624,000

576,000

_________
8,322,000

768,000
762,000
1,080,000
1,152,000
__360,000
8,322,000

_________
8,322,000

_________
8,322,000

(A)
(A)
(A)
(A)
(A)
(H)
(C)
(C)
(C)
(C)
(C)
(C)
(C)
(C)
(C)
(H)
(H)

Exchange
Rate
40.20
40.20
40,20
40.20
40.20
(1)
40.10
40.25
40.25
40.25
40.25
40.25
40.25
40.25
40.25
40.25
40.00
40.00

Adjusted Trial Balance

(Pesos)
Debit
Credit
89,244,000
4,824,000
31,597,200
3,955,680
14,436,000
44,919,000
29,366,400
40,089,000
24,150,000
31,395,000
20,769,000

145,684,800

23,040,000

___________
334,745,280

30,912,000
30,670,500
43,470,000
46,080,000
_14,400,000
334,257,300

___________
334,745,280

487,980
334,745,280

*Include as a component of other comprehensive income

(1) Retained earnings in pesos on January 2 (date of acquisition)
(A) Average exchange rate used to approximate the rate on the date these elements were recognized.
(H) Historical exchange rate
(C) Current exchange rate
Note: In the pre-closing trial balance approach, the following should be observed:
1. The retained earnings should be of beginning balance.
2. In the event that there are details as to the component of cost of goods sold purchases should be
translated using average and inventory should be of a beginning balance translated at the
appropriate rate existing at the date of inventory acquired.

Translation into the Functional Currency (Remeasurement or Temporal Method)

Functional Currency
Is Philippine Peso Translation into the Functional Currency (Remeasurement or Temporal Method)
Accounts

Adjusted Trial
Balance ($)
Debit
Credit

Exchange
Rate

Adjusted Trial Balance

(Pesos)
Debit
Credit

Sales
3,624,000
(A)
40.20
145,684,800
Purchases
2,304,000
(A)
40.20
92,620,800
Depreciation expense
120,000
(H)
40.00
4,800,000
Other expenses
786,000
(A)
40.20
31,597,200
Income tax expense
98,400
(A)
40.20
3,955,680
Retained earnings, 1/1
576,000
(1)
23,040,000
Dividends declared, 9/1
360,000
(H)
40.10
14,436,000
Cash.
1,116,000
(C)
40.25
44,919,000
Accounts receivable (net)
729,600
(C)
40.25
29,366,400
Inventory (FIFO), 1/1 (assumed)
912,000
(H)
40.00
36,480,000
Land
600,000
(C)
40.00
24,000,000
Buildings (net)
780,000
(C)
40.00
31,200,000
Equipment (net)
516,000
(C)
40.00
20,640,000
Accounts payable
768,000
(C)
40.25
30,912,000
Short-term notes payable
762,000
(C)
40.25
30,670,500
Bonds payable
1,080,000
(C)
40.25
43,470,000
Common stock, P10 par
1,152,000
(H)
40.00
46,080,000
Paid-in capital in excess of par
_________
__360,000
(H)
40.00
___________
14,400,000
Sub-totals
8,322,000
8,322,000
334,015,080
334,257,300
Remeasurement loss - debit
_________
_________
____242,220
___________
Totals
8,322,000
8,322,000
334,257,300
334,257,300
*Include as a component of other comprehensive income
(1) Retained earnings in pesos on January 2 (date of acquisition)
(A) Average exchange rate used to approximate the rate on the date these elements were recognized.
(H) Historical exchange rate
(C) Current exchange rate
Note: In the pre-closing trial balance approach, the following should be observed:
1. The retained earnings should be of beginning balance.
2. In the event that there are details as to the component of cost of goods sold purchases should be
translated using average and inventory should be of a beginning balance translated at the
appropriate rate existing at the date the inventory was acquired, refer to schedule below.
Schedule
Translation of Cost of Goods Sold

Accounts
Beginning inventory (assumed).
Purchases (assumed)..
Total..
Less: Ending inventory.
Cost of goods sold

($)
912,000
2,304,000
3,216,000
996,000
2,220,000

(H)
(A)
(A)

Remeasurement
Exchange
Rate
40.00
40.20
40.22

Pesos
36,480,000
92,620,800
129,100,800
40,059,120
89,041,680

Alternatively, the cost of goods sold will be lump into one amount (refer to schedule below),
and the inventory ending balance will be the amount presented in the trial balance the way
it was presented under the current/closing rate method

Accounts
Sales
Cost of goods sold
Depreciation expense
Other expenses
Income tax expense
Retained earnings, 1/1
Dividends declared, 9/1
Cash.
Accounts receivable (net)
Inventory (FIFO), 1/1 (assumed)
Land
Buildings (net)
Equipment (net)
Accounts payable
Short-term notes payable
Bonds payable
Common stock, P10 par
Paid-in capital in excess of par
Sub-totals
Remeasurement loss - debit
Totals

Adjusted Trial
Balance ($)
Debit
Credit
2,220,000
120,000
786,000
98,400
360,000
1,116,000
729,600
996,000
600,000
780,000
516,000

_________
8,322,000
_________
8,322,000

3,624,000

576,000

768,000
762,000
1,080,000
1,152,000
__360,000
8,322,000
_________
8,322,000

(A)
(A)
(A)
(A)
(H)
(C)
(C)
(H)
(C)
(C)
(C)
(C)
(C)
(C)
(H)
(H)

Exchange
Rate
40.20
Schedule
40.00
40.20
40.20
(1)
40.10
40.25
40.25
40.00
40.00
40.00
40.00
40.25
40.25
40.25
40.00
40.00

Schedule
Translation of Cost of Goods Sold

Accounts
Beginning inventory (assumed).
Purchases (assumed)..
Total..
Less: Ending inventory.
Cost of goods sold

($)
760,000
1,920,000
2,680,000
830,000
1,850,000

(H)
(A)
(A)

Adjusted Trial Balance

(Pesos)
Debit
Credit
89,041,680
4,800,000
31,597,200
3,955,680
14,436,000
44,919,000
29,366,400
40,059,120
24,000,000
31,200,000
20,640,000

___________
334,015,080
____242,220
278,547,750

Remeasurement
Exchange
Rate
40.00
40.20
40.22

145,684,800

23,040,000

30,912,000
30,670,500
43,470,000
46,080,000
14,400,000
334,257,300
___________
278,547,750

Pesos
36,480,000
96,620,800
129,100,800
_40,059,120
89,041,680

Correction: Exchange rate for 1 dollar instead of 1 peso; 20x9 should be 20w9
Problem II
Translation Into the
Presentation Currency or
Translation From Functional
Translation Into
Currency to the Presentation
the Functional
Currency or
Currency or
Current Rate Method
Temporal Method
or Translation**
or Remeasurement
Accounts payable
P.16 C
P.16 C
Accounts receivable
P.16 C
P.16 C
Accumulated depreciation
P.16 C
P.26 H
Advertising expense
P.19 A
P.19 A
Amortization expense
P.19 A
P.25 H
Buildings
P.16 C
P.26 H
Cash
P.16 C
P.16 C

Common stock
Depreciation expense
Dividends paid (10/1)
Notes payable
Patents (net)
Salary expense
Sales

P.28 H
P.19 A
P.20 H
P.16 C
P.16 C
P.19 A
P.19 A

P.28 H
P.26 H
P.20 H
P.16 C
P.25 H
P.19 A
P.19 A

* C = current rate, H = historical rate, A = average rate

** Revenue and expense accounts were translated using average rate, since the historical
rate is not practicable to determine.
Problem III
Accounts Receivable
Prepaid Assets
Accounts Payable
Common Stock
Land
Goodwill
Sales Revenue
Depreciation Expense
Problem IV
a. Prepaid Insurance
b. Land
c. Common Stock
d. Bonds Payable
e. Sales
f.
Goodwill
g. Allowance for Doubtful Accounts
h. Deferred Income Taxes
Problem V
a. Cash
b. Accounts Receivable
c. Inventory, carried at cost
d. Equipment
e. Accumulated Depreciation
f.
Bonds Payable
g. Common Stock
h. Sales
Problem VI

Net sales

Remeasurement /
Temporal Method
Current
Historical
Current
Historical
Historical
Historical
Weighted Average
Historical

Current Method
Current
Current
Current
Historical
Current
Current
Weighted Average
Weighted Average

Current
Current
Historical
Current
Weighted Average
Current
Current
Current
Current
Current
Historical
Historical
Historical
Current
Historical
Weighted Average

Rock Corporation
For the Year Ended December 31, 20x7
Income Statement

FC
FC 2,000,000

Rate
.37

Dollars
P740,000

Costs and expenses

Net income

800,000
FC 1,200,000

Statement of Retained Earnings

Retained earnings, beginning of year
Net income
Subtotal
Dividends (declared on March 31)
Retained earnings, end of year

FC 6,500,000
1,200,000
FC 7,700,000
1,000,000
FC 6,700,000

Balance Sheet
Assets:
Current assets
Plant assets (net)
(purchased January 1, 20x4)
Total assets
Liabilities and Stockholders' Equity:
Current liabilities
Long-term debt
Common stock (issued January 1, 20x4)
Paid-in capital in excess of par
Retained earnings
Cumulative translation adjustments
Total liabilities and stockholders' equity

FC

.37
.37

.40

296,000
P444,000
P1,300,000
444,000
P1,744,000
_ 400,000
P1,344,000

3,000,000

.50

P 1,500,000

55,000,000
FC 58,000,000

.50

27,500,000
P29,000,000

FC

.50
.50
.25
.25

P 2,000,000
12,500,000
1,250,000
4,325,000
P 1,344,000
7,581,000
P29,000,000

4,000,000
25,000,000
5,000,000
17,300,000
6,700,000
_____________
FC 58,000,000

Problem VII - Abercrombie

20x4 net loss (100,000 FCs) x P.215
20x5 net income (200,000 FCs) x P.24
20x6 dividend (50,000 FCs) x P.245
20x6 net income 75,000 FCs x P.25
Translated balance on December 31, 20x6
Problem VIII Philippine-owned Foreign Subsidiary
Beginning-of-year net assets x change in exchange rate during the year:
210,000 x (P1.15 P1.10)
Net income for 20X1 x (current rate average rate):
50,000 x (P1.15 P1.125)
Increase in net assets from stock issue x (current rate - historical rate):
30,000 x (P1.15 P1.12)
Decrease in assets from dividends (current rate dividend date rate):
(10,000) x (P1.15 P1.13)

P (21,500)
48,000
(12,250)
18,750
P 33,000

P10,500
1,250
900
(200)
P12,450

Problem IX
Functional Currency
Is the Currency of a Hyperinflationary Economy

Cash (M) . . . . . . . . . . . . . . . . . . . . . .
Inventory (N) . . . . . . . . . . . . . . . . . . .
Property, plant and equipment (N)
Total . . . . . . . . . . . . . . . . . . . . . . . . . .

FC
420,000
3,240,000
1,080,000
4,740,000

Current liabilities (M) . . . . . . . . . . . .

Non-current liabilities (M) . . . . . . . .
Common stock (issued 20x0) (N) . .
Retained earnings . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . .

840,000
600,000
480,000
2,820,000
4,740,000

Price
Index
*
300/270
300/150

Restated
(in FC)
420,000
3,600,000
2,160,000
6,180,000

*
*
300/100

840,000
600,000
1,440,000
3,300,000
6,180,000

(C)
(C)
(C)

Exchange
Rate
1.75
1.75
1.75

Translated
(in Pesos)
735,000
6,300,000
3,780,000
10,815,000

(C)
(C)
(C)
(C)

1.75
1.75
1.75
(B/A)

1,470,000
1,050,000
2,520,000
5,775,000
10,815,000

M monetary; N non-monetary
C current rate
B/A balancing amount
*monetary no restatement

Multiple Choice Problems

1. a
The peso is the functional currency, so a remeasurement (or temporal method) is
appropriate. Cash and accounts receivable are monetary assets remeasured at current
exchange rate of P47,500 and P95,000, respectively. Inventory is a nonmonetary asset
(carried at market value) are remeasured at the current exchange rate of P76,000. Land
and equipment, both nonmonetary assets (carried at cost) are remeasured at the
historical exchange rate of P54,000 and P135,000, respectively.
2. b

3. a

4. c

5. d

Because the functional currency is the local currency, a translation (or current rate
method) is required. All assets accounts are translated at current rates.
The foreign currency is the US dollars, so a translation (or current rate method) is
appropriate. All assets are translated at the current exchange rate of P1,270,000.
The peso is the functional currency, so a remeasurement (or temporal method) is
appropriate. Accounts receivable is a monetary asset remeasured at current exchange
rate of P175,000. Inventories (carried at cost) is remeasured at the historical exchange
rate of P450,000. Prepaid insurance and land, both nonmonetary assets (carried at cost)
are remeasured at the historical exchange rate of P45,000 and P100,000, respectively.
The foreign currency is the LCU, so a translation (or current rate method) is appropriate.
All assets are translated at the current exchange rate of P215,000.
The peso is the functional currency, so a remeasurement (or temporal method) is
appropriate. All accounts receivable are monetary assets remeasured at current
exchange rate of P150,000 (P100,000 + P50,000). Prepaid insurance and patents, both

nonmonetary assets (carried at cost) are remeasured at the historical exchange rate of
P30,000 and P45,000, respectively.
6. a

LCU it is assumed that historical rate is not practicable (despite the presence of it), then
PAS 21 requires the use of average rate [(2,600,000 - 0)/10 years x 1.8LCU per peso =
P144,444]
Peso - expense related to nonmonetary asset such as depreciation should be
remeasured using the historical exchange rate (exchange rate when the equipment was
acquired), i.e., :
20x2: (1,700,000 LCU 0)/10 years = 170,000 LCU /1.5 LCU per peso..P113,333
20x3: (900,000 LCU 0)/10 years = 90,000 LCU /1.6 LCU per peso 56,250
Total.P169,583

7. a

LCU the current rate method is used since the term translated was used, a translation
(or current rate method) is required. Inventory account is translated at current rate
(25,000 LCU / 2 LCU per peso = P12,500)
Peso the peso is the functional currency, so a remeasurement (or temporal method) is
appropriate. Inventory is a nonmonetary asset (carried at cost) is remeasured at the
historical exchange rate of 2.2 LCU per peso (25,000 LCU / 2.2 LCU per peso = P11,364)

8. b

The foreign currency is the functional currency, so a translation (or current rate method)
is appropriate. All assets (including inventory) are translated at the current exchange
rate [100,000 x P.17].

9. c

There is no indication that the historical rate is not practicable or any indication that
revenue and expenses account were incurred evenly throughout the year and at
same time the historical rate is given, therefore, cost of goods sold is translated at
exchange rate in effect at the date of accounting recognition, which is the date
goods were sold [100,000 x P.18].

the
the
the
the

10. d The foreign currency is the functional currency, so a translation (or current rate method)
is appropriate. All assets are translated at the current exchange rate of P.19.
11. c

12. a

The peso is the functional currency, so a remeasurement (or temporal method) is

appropriate. Inventory is a nonmonetary asset (carried at cost) is remeasured at the
historical exchange rate of P.16. Marketable equity securities is a nonmonetary asset
(carried at market value) are remeasured at the current exchange rate of P.19.
LCU
is Functional Currency
P120,000 = 2/15/x4 Peso value
(110,000) = 12/31/x3 Peso value
P 10,000 = Foreign currency
transaction gain

Peso
is Functional Currency
P10,000 = Foreign currency
transaction gain
30,000 = Remeasurement gain
P40,000 = Foreign exchange
Gain

Note: The term restating used by foreign subsidiary is an indication that the
temporal or remeasurement method is used.
13. a

LCU
is Functional Currency
P15,000 = Preadjusted foreign
exchange loss
6,000 = Foreign currency
transaction loss
($100,000 - $106,000)
P21,000 = Foreign exchange
loss

Peso
is Functional Currency
P15,000 = Preadjusted foreign
exchange loss
6,000 = Foreign currency
transaction loss
20,000 = Remeasurement gain
P41,000 = Net foreign
exchange loss

Note: The term restatement used by foreign subsidiary is an indication that

the temporal or remeasurement method is used.
14. b
Consideration transferred
Less:
Book and fair values of sub's net assets
680,000 FC x P.21 x .90 =
Positive excess: Goodwill (partial)

P160,000
128,520
P 31,480

Based on the choices given, the question is leaning on the partial goodwill approach. Since,
there is no choice available for full-goodwill approach.
15. c
Goodwill
Impairment

Pesos
P10,500
1,100 (FC 5,000 x P.22)

FC
(P10,500 / P.21)
5,000 (FC 50,000 / 10)

FC 50,000

16. a - Impairment loss = P10,500 / 10 = P1,050

17. a - The foreign currency is the functional currency, so a translation (or current rate method) is
appropriate. All assets (including inventory) are translated at the current exchange rate
[48,000 FC x P1.53 = P73,440].
18. a - The peso is the functional currency, so a remeasurement (or temporal method) is
appropriate. Inventory is a nonmonetary asset (carried at cost) is remeasured at the
historical exchange rate, but since the historical exchange rate cannot be specifically
identified and purchases happens evenly throughout the period, therefore 20x4 historical
(average which is unusual for a remeasurement method but allowed on exceptional cases
such as No. 33) rate of P1.45 is used. Thus:
Cost: 50,000 FC x P1.45 per FC (lower)P 72,500
Market: 48,000 FC x P.153 per FC.P 73,440
Under the temporal method, since the valuation of inventory is at historical
exchange rate which leads to valuation at cost (average in this case), so the LCM
rule is applied, in contrast to the current rate method (in No. 32), wherein the
valuation of inventory is outright current exchange rate.

19. a - the current rate method is used since the term translate was used, a translation (or
current rate method) is required. Dividend declared and paid is translated at historical
exchange rate at the date of declaration. i.e. 121 FC to P1.
20. a [1,500,000 baht / .630 baht, the average rate (historical rate is not practicable because
the data of sales per transaction were not given) = P2,380,952]
21. b (280,000 / .620 baht, the current rate = P451,613)
22. c
Net Assets (SHE), beginning
Add: Net Income: (30,000 20,000).
Net Assets (SHE), ending..
Net Assets (SHE), ending..
Translation adjustment
(positive credit) gain

Foreign
Currencies
20,000
10,000

Exchange
Rate
.15 (HR)
.19 (HR)

30,000

.21 (CR)

Pesos
3,000
1,900
4,900
6,300
1,400

SHE stockholders equity.

HR (historical rate) was used for Net Income (Sales and Costs of Sales since the details of
transaction were given.)
CR (current rate) was used for Net Assets (Assets and Liabilities account) to determine
the ending balance, so that the translation gain should be properly determined.
23. a
Beginning net monetary assets, 1/1
Increases in net monetary assets:
Sale of inventory ....................................
Decreases in net monetary assets:
Purchase of equipment........................
Purchase of inventory ...........................
Transfer to parent...................................
Ending net monetary assets, 12/31 ..................
Ending net monetary assets at
the current exchange rate ..................
Remeasurement gain .........................................

FC
100,000

Exchange Rate
x P.16 =

Pesos
P16,000

50,000

x P.20 =

10,000

(60,000)
(30,000)
(10,000)
50,000

x P.16 =
x P.18 =
x P.21 =

(9,600)
(5,400)
(2,100)
P 8,900

50,000

x P.22 =

(11,000)
P(2,100)

24. b the term translation adjustments was used indicating that the current rate method is in
effect (in contrast to the term remeasurement adjustments used by the temporal method),
therefore any translation debit (which is a loss) will be classified as other comprehensive
income.
25. a - the foreign currency is the functional currency, so a translation (or current rate method) is
appropriate. All assets (including inventory) are translated at the current exchange rate
[120,000 FC x P.20 = P24,000].

26. e Current Rate Method. The same situation with No. 9 except that the that the historical
rate is not practicable since the rate on January 17, 20x5 (date of sale) were not given,
therefore, cost of goods sold is translated at the average exchange rate for 20x5 which is
P.24 (120,000 FC x P.24 = P28,800).
27. d
Accounts
Beginning inventory
Purchases
Total
Less: Ending inventory
Cost of goods sold

(FC)
500,000
1,000,000
1,500,000
400,000
1,100,000

(H)*
(A)

Remeasurement
Exchange
Rate
P.00148
.00160

(A)

.00162

*not specifically identified unlike No. 46, may also be termed as average (historical) rate

28.

b If the functional currency is the currency of a third country, remeasure (temporal

method) from LCU into the functional currency; then translate ( c u r r e n t r a t e
m e t h o d ) into peso by using the average exchange rate since historical rate is not
practicable (no data available on the specific date the items that were purchased) , i.e.,
1,100,000 FC x P0.00160 = P1,760. It should be noted that the requirement is translation of
cost of goods sold which means that the value of cost of goods sold should be under the
current rate method.

29. c
Accounts
Beginning inventory
Purchases
Total
Less: Ending inventory
Cost of goods sold
30.

Pesos
P 740
1,600
P2,340
__648
P1,692

(FC)
10,000
80,000
90,000
15,000
75,000

(H)
(A)

Remeasurement
Exchange
Rate
P1.60
1.50

(A)

1.45

Pesos
P 16,000
120,000
P136,000
__21,750
P114,250

b If the functional currency is the foreign currency, then cost of goods sold will be
translated using the average exchange rate since historical rate is not practicable (no
data available on the specific date the items that were purchased) , i.e., 75,000 FC x P1.50
= P112.500.

31. b
Accounts
Beginning inventory
Purchases
Total
Less: Ending inventory
Cost of goods sold

(FC)
20,000
400,000
420,000
_15,000
405,000

(H)
(A)

Remeasurement
Exchange
Rate
P.93
.96

(A)

.99

*not specifically identified unlike No. 46, may also be termed as average (historical) rate

Pesos
P 18,600
384,000
P402,6 00
__14,850
P 387,750

32. c - historical rate is not practicable since the rate on date of acquisition is not given unlike
No. 9, therefore, cost of goods sold is translated at the average exchange rate for 20x5
which is P.96 [405,000 FC (refer to No. 48) x P.96 = P388,800).
33. d refer to No. 31
34. e under the current rate method, all assets are translated at the current exchange rate,
therefore the inventory should be translated at P1.01 (FC 15,000 x P1.01 = P15,150).
35. a under the temporal method, inventory being a nonmonetary asset (carried at cost) is
remeasured at the historical exchange rate, but since the historical exchange rate cannot
be specifically identified and purchases happens evenly throughout the period, therefore
20x4 historical (average which is unusual for a remeasurement method but allowed on
exceptional cases such as No. 33) rate of P1.43 is used. Thus:
Cost: 300,000 LCU x P1.43 per LCU (lower)P 429,000
Market (NRV at replacement cost) : 320,000 LCU x P.142 per LCUP 454,400
Under the temporal method, since the valuation of inventory is at historical exchange rate
which leads to valuation at cost (average in this case), so the LCM rule is applied, in contrast
to the current rate method (in No. 53), wherein the valuation of inventory is outright current
exchange rate.
36. a - under the current rate method, all assets are translated at the current
exchange rate, therefore the inventory should be translated at P1.42 (FC 320,000 x
P1.42 = P454,400).
37. a CNI, P3,100,000 and Cons. CI, P3,220,000

Consolidated Net Income for 20x4

Net income from own/separate operations:
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
Add: Comprehensive Income
Consolidated Comprehensive Income
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company
Less: Amortization of allocated excess (refer to amortization table above)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
Add: NCI on Comprehensive Income (translation gain)
(P120,000 x 20%)
Non-controlling Interest in Comprehensive Income

P220,000
0
_____ 0

P2,000,000
1,100,000
P3,100,000
220,000
P2,880,000
220,000
P3,100,000
120,000
P3,220,000
P 1,100,000
0
P 1,100,000
20%
P 220,000
24,000
P 244,000

38. a regardless of the method used (whether current rate or temporal method, the rate to be
used should be the historical rate on the date of declaration, i.e. P.23 (20,000 LCU x P.23 x
75% = P3,450).

39. c - Translation adjustment loss (debit): P8,000 x 75% = P6,000

40. c - under the current/closing rate method (the functional currency of Transport
Corporation is the LCU), the translation adjustments on the goodwill, if any and the fair
value differential relating to the patent as they are considered net assets of Transport
and are translated at the current or closing rate.
The translation adjustments are as follows:

On the fair value differential:

Undervalued patent on 1/1/20x4: P25,000 / P.20 = FC 125,000.
Less: Amortization expense [125,000/ 5 years = FC 25,000 x P.22].
Undervalued patent, net on 12/31/20x4................
Undervalued building, net on 12/31/20x4 [(125,000 FC 25,000 FC
= 100,000 FC x P.24.
Translation adjustment gain on undervalued patent (OCI)..

P 25,000
( 5,500)
P 19,500
P

24,000
4,500

41. b - Amortization expense [125,000/ 5 years = FC 25,000 x P.22] = P5,500. Under the current
rate method, the historical rate is not given therefore, historical rate is not practicable to be
use, and then PAS 21 requires the use of average rate.
42. a Current rate method, (50,000 FC x P.90, current = P45,000)
Number of Foreign Currencies (FCs)
Sales: P40,000 / P.80 = 50,000 FC
Cost: P30,000 / P.80 = 37,500 FC
43. c Current rate method:
Unrealized intercompany profit: (50,000 FC 37,500 FC) x P.80, historical rate = P10,000.
44. d (P45,000 P10,000, unrealized profit = P35,000)
45. No answer available P250,000

Common stock
Purchases
Sales
Cash*
Equipment
Translation loss

FC

Debit
8,000,000
8,000,000
1,000,000
17,000,000

Credit
5,000,000
12,000,000
_________
17,000,000

Exchange
rate
.20
.18
.18
.16
.16

*5,000,000 8,000,000 + 12,000,000 1,000,000

Apply to rules under the current method.

Pesos
Debit
1,440,000
1,280,000
_160,000
2,880,000
_250,000
3,160,000

Credit
1,000,000
2,160,000
_________
3,160,000
________
3,160,000

48. b under the current rate method, revenues and expenses will be translated using the
average rate since historical rates are not practicable (with revenues and expenses are not
identified as to the date of acquisition)
49. b

FC

Exchange rate

Pesos

Net assets, 1/1/20x4

Changes in net assets, 20x4
Issued common stock
Net income
Dividends paid
Net assets, 12/31/20x4
Net assets, 12/31/20x4 at current rate
Translation adjustment increase (gain)
Apply to rules under the current method.

0
1,000,000
80,000
( 20,000)
1,060,000
1,060,000

P
1 FC / P.48
1 FC / P.44
1 FC / P.46
1 FC / P.42

2,083,333
181,818
( 43,478)
P2,221,673
_2,523,810
P 302,137

50. a
51. b
52. b
On November 29, 20x4, the following amounts should be recorded by Manilow, ignoring
interest payable on the loan. The cash advance from the bank is translated at the rate
on the date that it was received (1,520,000 yen x P1 / 1.52 yen = P1,000,000) and a
liability recorded for the same amount.
53. b

As the loan was still outstanding at the end of the period and it is a monetary item, it
should be retranslated at the exchange rate at the end of the reporting period (1,520,000
yens x P1 / 1.66 yens = P915,663 ). The exchange difference should be recognized as a
gain in profit or loss for the period. (P1,000,000 less P915,663 = P84,337).
PAS 21 par. 28 states that Exchange differences arising on the settlement of monetary
items (i.e. bank loan payable in this case) or on translating monetary items at rates
different from those at which they were translated on initial recognition during the period
or in previous financial statements shall be recognized in profit or loss in the period in
which they arise.

54.

b
The goodwill at the date of acquisition is P100,000 (400,000 baht x P1 / 4 baht). At the yearend it is retranslated to P80,000 (400,000 baht x P1/5 baht). The difference of P20,000 is
recorded as an exchange loss and reported in other comprehensive income.

55.

c Nt Dollar 175,000 / Nt Dollar 1.298 = P134,823

Goodwill arising from acquisition Nt Dollar 175,000
Divided by: Closing/Current rate (Nt dollar : peso)Nt Dollar
1.298
Goodwill in the consolidated balance sheet.
P134,823
In the consolidated financial statements, any goodwill arising on the acquisition of a
foreign operation should be treated as an asset of the foreign operation. The goodwill
should therefore be expressed in the functional currency of the foreign operation and
translated at the closing rate at the date of each statement of financial position. The same
treatment is required of any fair value adjustments to the carrying amounts of assets and
liabilities arising on the acquisition of a foreign operation. In both cases exchange
differences are recognized in other comprehensive income, rather than as part of the
profit or loss for the period.

56.

Fair value adjustments (undervaluation of land) .Nt 50,000

Divided by: CLOSING / CURRENT RATE on the balance sheet
(Nt dollar per peso)
1.56
Fair value adjustments... P 32,051
PAS21 par. 47 requires fair value adjustments to the carrying amounts of assets and
liabilities arising on the acquisition of a foreign operation to be treated as assets and
liabilities of the foreign operation. Therefore they are translated at the closing rate of
exchange.
57.

c 160,000 yens x P1 / 2.40 yens = P66,667

PAS 21 par. 23 (a) requires the foreign currency monetary items, such as trade payables, of
an entity to be retranslated at the closing rate at the end of a reporting period.

58. c
Consideration Transferred. 9.0 million
Less: Fair value of net assets acquired.. 6.0 million
Goodwill. 3.0 million
Divided by: Current/Closing rate on the balance sheet. 2.0 baht per peso
Goodwill in the Consolidated Balance Sheet.P1.5 million
Examinees or students may be misled that since the functional currency is peso, the
temporal method (applied only in case of subsequent to date of acquisition) should then be
applied wherein goodwill or any fair value adjustments is considered as a non-monetary
asset carried at historical cost be remeasured (or translated) using historical rate (which in
this problem is 1.5 baht = P1). But the problem do not fall under this category the temporal
method, instead it is an example of a goodwill and fair value adjustments arising from
acquisition of subsidiaries.
Goodwill arising from the Acquisition of Subsidiaries (Date of Acquisition)
When a company acquires a controlling interest in another company, the excess of the
purchase price over the acquirers interest in the fair value of the identifiable net assets of
the acquired company is recognized as goodwill on consolidation. In the context of a
foreign company, the issue arises as to whether goodwill is an asset of the acquired
company or an asset in the acquirers books. If it is an asset of the acquired subsidiary, the
goodwill is a foreign asset which should be translated in the same manner as any other asset
of the acquired subsidiary, which may give rise to a translation difference. However, if it is
treated as an asset in the acquirers books, there is no need for translation.
Pas 21 par. 47 states that:
Any goodwill arising on the acquisition of a foreign operation and any fair
value adjustments to the carrying amount of assets and liabilities arising on
the acquisition of that foreign operation shall be treated as assets and
liabilities of the foreign operations. Thus they shall be expressed in the
functional currency of the foreign operation and shall be translated at the
closing rate
Subsequent to date of acquisition, accordingly goodwill has to be measured in the
functional currency of the foreign operation. If the functional currency of the foreign
operation is the local currency, the goodwill on acquisition is to be translated at the closing
rate. On the other hand, if the functional currency of the foreign operation is the parents

currency (or the presentation currency), goodwill on acquisition is treated as a nonmonetary asset and remeasured at the exchange rate of the acquisition of the foreign
operation,
59.

b - refer to No. 58 for further discussion.

The goodwill at the date of acquisition is P100,000 (400,000 baht x P1 / 4 baht). At the
year-end it is retranslated to P80,000 (400,000 baht x P1/5 baht). The difference of P20,000
is recorded as an exchange loss and reported in other comprehensive income.
In the consolidated financial statements, any goodwill arising on the acquisition of a
foreign operation should be treated as an asset of the foreign operation. The goodwill
should therefore be expressed in the functional currency of the foreign operation and
translated at the closing rate at the date of each statement of financial position. The same
treatment is required of any fair value adjustments to the carrying amounts of assets and
liabilities arising on the acquisition of a foreign operation. In both cases exchange
differences are recognized in other comprehensive income, rather than as part of the
profit or loss for the period.

60. a
Allocated Excess arising from consolidationP1,200,000 baht
Divided by: CLOSING / CURRENT RATE on the balance sheet
(baht per peso)
_
2.0
Allocated Excess (over/under valuation)... P 600,000
Refer to Nos. 55 and 58 for further discussion of using closing/current rate. Again, the same
with No. 58, the functional currency of peso is somewhat misleading; it does not refer to the
use of temporal method on the date of acquisition.
61. b = 60,000 LCUs x (P100,000 P50,000)/P100,000 = 30,000 LCUs x P1/4 LCUs = P7,500

Note: The deferred profit included in the inventory should be translated based on the
historical rate
(average rate if historical rate is not practicable) since it will eventually be treated as a revenue.

62. b the P8,000 downward adjustment in liability indicates a gain on transaction presented in
statement of comprehensive income (income statement). The 60,000 occurred in translation since
the functional currency is the foreign currency, then current rate method is used and any
cumulative translation gain or loss (AOCI) will be in the stockholders equity.
63. c
Net income: 100,000 LCUs x P.70 (average rate since evenly)P 70,000
Less: Dividend paid: 20,000 LCUs x P.75 (historical rate).... 15,000
Effect on retained earnings increase...P 55,000
64. d
Correction: LCU should be Pesos
Total assets
Total Liabilities and SHE
Liabilities
SHE
Common stock
Retained earnings,1/1/x6
Add: Net income (P200,000- P150,000)
Less: Dividends
AOCI (loss)
Effect on the 20x6 exchange rate

P500,000
P 300,000
P 80,000
50,000
_____-0-

40,000
130,000
( 20,000)

__450,000
P 50,000

65. c
Correction: LCU should be Pesos
Retained earnings,1/1/x6
Add: Net income (P200,000- P150,000)
Less: Dividends
Retained earnings,1/1/x6
66. c

Hedging Instrument:
12 month -Forward rate date of hedging, 1/1/x6
Spot rate, date of expiration, 12/31/20x6
x: No. of foreign currencies: LCUs
Forward Contract gain Cash flow hedge (AOCI)
Translation Loss (AOCI)
Net Assets (Assets Liabilities): (700,000 600,000) x P.56,
current rate
Stockholders equity: 100,000 LCU x P.60, historical rate
Net AOCI

67. b

P 80,000
50,000
_____-0P130,000

Selling price of subsidiary

Less: Carrying/book value of subsidiary
Gain on sale of subsidiary
AOCI translation adjustment loss
Net gain on sale of subsidiary

P
.60
____.56
P
.04
100,000
P 4,000
P 56,000
__60,000

_4,000
P
-0P 5,000,000
__4,000,000
P 1,000,000
___300,000
P 700,000

68. d
PAS No. 29 does not establish an absolute rate at which hyperinflation is deemed to arise but allows judgment as to when restatement of financial statements becomes necessary.
One of the characteristics of the economic environment of a country which indicate the
existence of hyperinflation includes:
the cumulative inflation rate over three years approaches, or exceeds, 100%
The computation of cumulative inflation rate over three years is as follows: (210
90)/90 = 133.33%.
69.
70.
71.
72.
73.
74.
75.

b - 64,000,000 x P.0085 = P544,000

a - 875,000 x P1.62 = P1,417,500
d - 4,300,000 x P.57 = P2,451,000
b (930,000 - 600,000) P1.03 = P339,900 debit
c - 675,000,000 x P.0086 + 60,000,000 x P.0088 = P6,333,000
a - [(675,000,000 - 135,000,000)/8] P.0086 + (60,000,000/10) (8/12) P.0088 = P615,700
bBeginning balance 135,000,000 x P.0086
P1,161,000
Current period depreciation expense
615,700
[(675,000,000 - 135,000,000)/8] P.0086 +
(60,000,000/10) (8/12) P.0088
Ending balance
P1,776,700

76.
77.
78.
79.
80.
81.
81.
82.
83.

d - P1,529,000 + P52,000 - P490,000 - P253,000 - P352,000 = P486,000

b - (P692,000 + P18,000 - P185,000 - P72,000 - P126,000) .6 = P196,200
a - {[(198,000 - 138,000) + (720,000 - (650,000 - 230,000))/10] P.095} .9 = P7,695
c - (P690,000 - P351,000 - P103,000 - P125,000 - P12,000) .2 = P19,800
a - [P458,000 - P175,000 - P52,000 + P15,000 - (140,000 + 450,000/10) P.68] .2 = P24,040
d - [P760,000 - P260,000 - P80,000 - P20,000 - (100,000 + 260,000/10) P1.06] .4 = P114,576
a - (800,000,000 + 75,000,000) P.0084 = P7,350,000
b - [(800,000,000 - 300,000,000)/5] P.0088 + [(75,000,000/10) (3/12)] P.0086 = P896,125
c
Beginning balance
300,000,000
Current period depreciation expense [(800,000,000 101,875,000
300,000,000)/5] + [(75,000,000/10) (3/12)]
Ending balance (LCU)
401,875,000
Ending balance (pesos) 401,875,000 x P.0084 =
P 3,375,750
84. b - P600,000 - P327,000 - P57,000 = P216,000
85. b - P370,000 + P760,000 + P374,000 + P36,000 + P30,000 - P572,000 - P472,000 - P550,000 =
P24,000 debit
86. a - P1,478,000 - P530,000 - P268,000 - P247,000 = P433,000
87. b - (P1,783,000 - P741,000 - P358,000 - P416,000) .7 = P187,600
88. b - {[(180,000 - 137,000) + (830,000 - 650,000)/10] P1.53} .8 = P74,664
89. b - (47,000 x P1.18 + 78,000 x P1.16) .8 = P116,752
90. a - (52,000 x P.66 + 76,000 x P.69) .9 = P47,196
91. c
Correction: 200x should 20x5
(P120,000 - P86,000) .8 = P27,200 credit
92. b - (P1,623,000 - P847,000 - P179,000 - P252,000) .1 = P34,500
93. d - [P735,000 - P322,000 - P258,000 - (160,000 + 360,000/10) P.66] .3 = P7,692
94. c - [P1,200,000 - P420,000 - P190,000 - (110,000 + 180,000/10) P1.20] .2 = P87,280
95. a the foreign currency is the functional currency, since historical rate (rate on date of
transaction) is not practicable to determine , then PAS 21 requires the use of average rate :
Share in net income: FC 25,000 x 100% x P.124.. P31,000
Less: Amortization of allocated excess
0
Income from subsidiary.P 31,000
96. d regardless of what method used to translate the F/S of a foreign entity (subsidiary), the
rate use to translate dividends declared or paid would always be the historical rate on the
date of declaration, i.e., P1.30 x FC 5,000 = P6,500.
97. c
Consideration transferred
Less:
Book and fair values of sub's net assets
300,000 FC x P1.20x 100% =
Positive excess: Goodwill (partial)
Goodwill
Impairment
Balance

Dollars
P42,000
4,340 (FC3,500 x P1.24)
P37,660

Translated
balance

P41,580 (FC 31,500 x P1.32)

P402,000
360,000
P 42,000
Euros
(P 42,000 / P1.20)
3,500 (FC 35,000 / 10)
FC 31,500
FC 35,000

Translation adjustment: P41,580 minus P37,660 = P3,920 use for No. 28.
98. b
Translation adjustment from translating the trial balance
P 12,000 cr
Translation adjustments from translating goodwill
3,920 cr
Total translation adjustment
P15,920cr

Quiz - XXI

1. P430,000 - Because the foreign currency is the functional currency, a translation (or current
rate method) is required. All assets accounts are translated at current rates.
2.

P440,000, because the peso is the functional currency, a remeasurement is required. All
receivables which are monetary assets are remeasured at current rates. Assets carried at
historical cost, such as prepaid insurance and goodwill which are nonmonetary assets, are
remeasured at historical rates.

3. P755,000 - The current rate method is used since the term translated was used, a translation
(or current rate method) is required. All assets accounts are translated at current rates.
4. P1,270,000 - The current rate method is used since the term translated was used, a
translation (or current rate method) is required. All assets accounts are translated at current
rates.
5. a
The current rate method is used since the term translated was used, a translation (or
current rate method) is required. All assets accounts are translated at current rates.
6. P687,500
LCU since the problem indicates that expense accounts occurred approximately evenly
during the year is an indication that historical rate is not practicable, then PAS 21 requires the
use of average rate [(375,000 + 250,000 + 625,000) x P.55 = P687,500].
7. The temporal method is used since the term remeasure was used. Patent is a nonmonetary
asset carried at cost is remeasured at the historical exchange rate of P1.50
8. P52,000 = 100,000 LCUs x P.52, current rate (or balance sheet rate, since it is a current rate
method. The inflation rate of 20% is not a basis to conclude that the country where the
subsidiary is located is experiencing a hyperinflationary economy because the requirement
should be a cumulative inflation of 100% or more over a three year period).
9.

Assume the use of current rate method - P113,000 increase assume revenue and expense
were incurred evenly during the year.
Net income: 300,000 LCUs x P.55..P 165,000
Less: Dividend paid: 100,000 LCUs x P.52 (historical rate).. 52,000
Effect on retained earnings increase.P 113,000

10. Answers: P15,000 decrease or loss from the translation process;

P21,000 loss from hedging instrument;
P36,000 AOCI balance - loss
Hedging Instrument:
12 month -Forward rate date of hedging, 1/1/x6
Spot rate, date of expiration, 12/31/20x6
x: No. of foreign currencies: LCUs

P
.82
____.75
P
.07
300,000

Forward Contract loss Cash flow hedge (AOCI)

Translation Loss (AOCI)
Net Assets (Assets Liabilities): (800,000 500,000) x P.75,
current rate
Stockholders equity: 300,000 LCU x P.80, historical rate
AOCI balance - loss

P 21,000
P 225,000
_240,000

_15,000
P36,000

11. P4,307,000 = 7,300,000 LCUs x P.59

12. P736,000 = 800,000 LCUs x P.92
13. P972,000 = 900,000 LCUs x P1.08
14. P164,900 debit = (400,000 - 230,000) P.97
15. P112,000 debit = (900,000 - 700,000) P.56
16. P21,000 credit = P440,000 + P670,000 + P329,000 + P27,000 + P20,000 - P327,000 - P728,000 P410,000 = P21,000 credit
17. a
LCU since historical rate (rate on date of transaction) were not given for provision of
doubtful accounts and rent expense, therefore, historical rate is not practicable, then PAS 21
requires the use of average rate [(120,000 + 80,000 + 200,000) x P.44 = P176,000].
Peso
Expense related to nonmonetary asset such as depreciation should be remeasured
using the historical exchange rate (exchange rate when the equipment was
acquired), i.e., 120,000 x P.50 = P60,000
Expenses related to monetary asset such as uncollectible accounts and rent expense
should be remeasured using average exchange rate [(80,000 + 200,000) x P.44 =
P123,200]
18. a

LCU
is Functional Currency
P13,000 = Preadjusted foreign
exchange loss
4,000 = Foreign currency
transaction loss
(P60,000 - P64,000)
P17,000 = Foreign exchange
loss

Peso
is Functional Currency
P13,000 = Preadjusted foreign
exchange loss
4,000 = Foreign currency
transaction loss
(7,000) = Remeasurement gain
P10,000 = Net foreign
exchange loss

Note: The term restatement used by foreign subsidiary is an indication that the
temporal or remeasurement method is used.
19.

LCU (No. 39)

is Functional Currency
P10,000 = Preadjusted foreign
exchange loss
3,000 = Foreign currency
transaction loss
(P50,000 P53,000)
P13,000 = Foreign exchange
loss

Peso (No. 40)

is Functional Currency
P10,000 = Preadjusted foreign
exchange loss
3,000 = Foreign currency
transaction loss
15,000 = Remeasurement loss
P10,000 = Net foreign
exchange loss

Note: The term restatement used by foreign subsidiary is an indication that the
temporal or remeasurement method is used.
20. refer to No. 19
21.
if analysis is in pesos:

Fair value of Subsidiary (100%)

Consideration transferred:
Cash
Less: Book value of stockholders equity of Hastie:
(P450,000 FC x P.70, current rate x 100%)
Allocated excess (excess of cost over book value)..
Less: Over/under valuation of assets and liabilities:
Increase in patent due to undervaluation

or, if analysis is in foreign currency:

Fair value of Subsidiary (100%)

Consideration transferred:
Cash P350,000 / P.70
Less: Book value of stockholders equity of Hastie:
(P450,000 FC x 100%)
Allocated excess (excess of cost over book value)..
Less: Over/under valuation of assets and liabilities:
Increase in patent due to undervaluation

P350,000
315,000
P 35,000
__35,000
P
0

FC
500,000
450,000
50,000
__50,000
0

PAS 21 paragraph 47 states: Any goodwill arising on the acquisition of a foreign

operation and any fair value adjustments to the carrying amounts of assets and liabilities
arising on the acquisition of that foreign operation shall be treated as assets and liabilities of
the foreign operation. Thus, they shall be expressed in the functional currency of the foreign
operation (meaning their functional currency is the LCU), and shall be translated at the
current/closing rate.
Thus, since patent is a fair value adjustments it should be translated at the current rate (on
the date of acquisition), i. e. P.70 (P.70 x 50,000 FC = P35,000).
22.

23.

The subsequent accounting treatments for goodwill and fair value adjustments together
with their impairment and depreciation/amortization depend on the method being used,
since the functional currency of Hastie is the FC, then the current rate method is used.
Therefore, the average rate of P.68 [P.68 x (50,000 FC / 5 years) = P6,800] is used for
depreciation since the historical rate for patent is not practical to be determined.
The subsequent accounting treatments for goodwill and fair value adjustments together
depend on the method being used, since the functional currency of Hastie is the FC, then
the current rate method is used. Therefore, the current rate on balance sheet date of P.65
[P.65 x (50,000 FC 10,000 FC, depreciation) = P26,000] is used.

24. the foreign currency is the functional currency, since historical rate (rate on date of
transaction) is not practicable to determine , then PAS 21 requires the use of average rate :

Share in net income (given).... P25,000

Less: Amortization of allocated excess (No.55).. 6,800
Income from subsidiary. P18,200
Note: The equity method of accounting is used, the manner the choices were presented.
25. a under the current rate method since historical rate (rate on date of transaction) is not
practicable to determine , then PAS 21 requires the use of average rates:
Investment balance, January 1, 20x4P1,600,000
Add: Share in net income: 800,000 FC x 70% x P.57... 319,200
Less: Amortization of allocated excess ....
Dividends; 50,000 FC x 70% x P.59, historical rate
on date of declaration.
20,650
Translation adjustment loss (debit): P25,000 x 70%...........
17,500
Investment balance, December 31, 20x4P1,881,050
26. d 30% x P25,000 = P7,500.
27. P451,600
Beginning inventory (230,000 x P.68)
Purchases (720,000 x P.71)
Ending inventory (300,000 x P.72)
Cost of Goods Sold
28. P216,000
Beginning inventory (230,000 x P.68)
Purchases (720,000 x P.71)
Ending inventory (300,000 x P.72)
Cost of Goods Sold
29. P1,975,000
Beginning inventory
Purchases
Ending inventory
Cost of Goods Sold

P156,400
511,200
(216,000)
P451,600
P156,400
511,200
(216,000)
P451,600
400,000
1,700,000
(520,000)
1,580,000 x P1.25 = P1,975,000

30. P629,200 - Ending inventory (520,000 x P1.21) = P629,200

Multiple Choice Theories
1. D
9.
a
17.
2. C
10. c
18.
3. C
11. a
19.
4. D
12. b
20.
5. C
13. b
21.
6. B
14. c
22.
7. A
15. c
23.
8. D
16. a
24.
Note for:

c
c
d
b
c
d
c
a

25.
26.
27.
28.
29.
30.
31.
32.

d
c
b
a
d
b
b
d

33.
34.
35.
36.
37.
38.
39.
40.

a
a
b
c
c
a
a
c

41.
42.
43.
44.
45.
46.
47.
48.

d
c
c
a
b
c
d
c

49.
50.
51.
52.
53.
54.
55.
56.

c
c
b
a
c
c
b
b

57.
58.
59.
60.
61.
62.
63.
64.

c
d
a
a
a
b
a
e

65.
66.
67.
68.
69.
70.
71.
72.

b
d
b
e
e
d
d
a

73.
74.
75.
76.
77.
78.

a
a
c
a
a
b

17. Note: Answer d under PAS 29 in relation to PAS 21, it requires restatement first before translation and neither of the
two methods is use. In fact all assets, liabilities and equity accounts are translated using current rates. In US, the
temporal method is used in cases of highly inflationary economy.
39. The unadjusted trial balance is remeasured regardless of the functional currency. For US GAAP, the answer should
be letter D.

51. Because the peso is the functional currency, the financial statements must be translated using the current rate
method. Therefore, answers (a) and (d) can be eliminated. Because the subsidiary has a net asset position and the
peso has appreciated from P.16 to P.19, a positive translation adjustment will result.
52. All asset accounts are translated at current rates.
56. By translating items carried at historical cost by the historical exchange rate, the temporal method maintains the
underlying valuation method used by the foreign subsidiary.
54. Marketable equity securities are carried at market value and therefore translated at the current exchange rate
under the temporal method.
55. When the U.S. dollar is the functional currency, SFAS 52 requires remeasurement using the temporal method with
remeasurement gains and losses reported in income.
56. Wages payable is translated at the current exchange rate.
57. Gains and losses on hedges of net investments (whether through a forward contract, borrowing, or other technique)
are offset against the translation adjustment being hedged.
58. Remeasurement gains are reported in the income statement as a part of income from continuing operations.
64. When the remeasurement method is used, monetary accounts are restated at the exchange rate at the balance
sheet date, while nonmonetary accounts are restated using the exchange rate(s) at the date(s) the transaction(s)
occurred which are reflected in the account balance. In this question, bonds payable and accrued liabilities are
both monetary accounts and would be restated using the balance sheet exchange rate. Trading securities
represent a nonmonetary account. Trading securities would be restated using the balance sheet rate because the
account balance is stated at the market values at the balance sheet date. Inventories are also a nonmonetary
asset. Since they are stated at cost, a historical exchange rate would be used to restate inventories.
62. The current rate method of translation allows the use of a weighted average exchange rate for revenues and
expenses that occur throughout the year. Since both sales and wages expense occurs throughout the year, a
weighted average exchange rate can be used for translation.
63. For hedges of net investments in a foreign entity, the amount of the change in fair value of the hedging instrument is
recorded to other comprehensive income that then becomes part of the accumulated other comprehensive
income. The change in the translation adjustment during the period is reported as a component of other
comprehensive income and then carried forward to be accumulated in the stockholders equity section of the
balance sheet with the other components of other comprehensive income. Therefore, in this case in which a hedge
of a net investment in a foreign entity is used, the exchange gain on the hedge is reported along with the change in
the translation adjustment.