Functional

currency ginagamit ng country / mamamayan

-

of the
currency primary economic environment in which
-

the entity operate

Foreign Wrrenay currency other than the functional of the
entity
-

currency
Presentation currency currency -
in which the financial statements are presented
Exchange Rate -
ratio of 2 currencies

•
Indirect Quote # to $
; F- I :$
0045 .

isang piso , Hang dollar ang katumbas ?

-

•
Direct Quote -
$ to # ; $1 : # 45
sa babita
etoginagamit
-

as to time
i.
Closing / Current 1 Ending Rate
exchange rate that exist at the financial
-

position date
2. Historical Rate [spot) the moment of transaction
exchange rate
-

3.
Average Rate rate that
approximates
the
exchange rates at the
-

dates of the transactions

1.
Foreign currency transactions -
transaction which is denominated in or

requires settlement in foreign currency

car xxx even if the transaction is abroad but is
-

A/P Xxx to be paid PH it is not foreign

in
peso , a

currency transaction foreign transaction

but a

2-
Foreign Operations is an
entity that is a
subsidiary associate joint venture
-

, , ,

or branch of the activities of which

a
reporting entity ,
other
are based
conducted in
or a
country or
currency
than those of the
reporting entity .

Rev .
¥ Rev F- .

A¥ A F-
Exp ¥ .
Exp # .

,
L ¥ L F
translate
E ¥ [ #
Foreign currency transaction
some Activities :

a.
Buying selling of goods or services whose price is denominated in
or

foreign currency
b.
Borrowing lending of funds when the amounts payable or receivable
or is
denominated in foreign currency
c.
Acquiring or
disposing of assets incurring or settling liabilities in a foreign currency
,

Accounting Issues
① transaction Date > initial measurement

measurement 1 .
Spot Rate
2.
Average Rate

Seller Foreign Currency : Buying Rate

Buyer
Ikaw
Foreign
dollars
Yung bi biting
Currency
bank , so
Selling Rate
:
Kasi Kunwar' Ikaw
Yung may dollars
ikawyungmagbebentasa
na
sa
bibilhinmosyasa selling rate
mya ,
Kaya buying rate Habibithin ng
so
bank
bank ,
mas Matassa
buying since need kumita ng bank sayo which is mas
, mababasa selling rate

Purchases Xxx A /R Xxx

A /P Xxx Sales xxx

② End Of
Reporting Period

monetary items > closing rate > changes to PIL

> historical rate
non-monetary items changes to PIL
depends on subsequent
>
exchange rate
measurement
when FV was determined changes to OCI

IF BUYER :

Forex Loss Xxx °

A/ P XXX

A /P xxx Forex Gain xxx

$1 :#50 > $1 :# 52 $1 :#50 > $1 :#48

IF SELLER :

AIR ✗✗✗ Forex Loss Xxx

Forex Gain xxx or AIR xxx

$1 :#50 > $1 :# 52 $1 :#50 > $1 :#48

③ Settlement Date -

exchange differences shall be recognized in

the period in which they arise

AIP Xxx
Forex Loss xxx
F- 50 → ¥52 → ¥55
Cash Xxx

FOREX

transactions in
Foreign Currency exchange
to
rates

Foreign Activities Accounting use

Issues
how to
Foreign Operations Ds in
report the
foreign currency
functional PHP

currencies foreign VSD , JPY , AUD

presentation PHP

recorded
All
foreign transactions are
all the changes between initial and year-end)
will be charged to PIL
Initially >
spot rate

monetary >
closing rate
date &
foreign → functional historical >
transaction
Year end
-

functional → Presentation
non-monetary cost
When the FU is
Fu >
determined
B. IS lls
v
1. date of transaction

A L E 2.
average rate

↓ "
All the
common Retained changes between initial and year-end)
closing stock
Earnings will be
rate charged to Oct or Foreign
date of Everage
transaction rate
Wrrenoy Translation Adjustment
>
equity account
 Translation of Financial Statements
Foreign
that
Foreign Operation - is an
entity subsidiary associate joint venture
is a , , ,

or branch of a
reporting entity the activities of which ,
other
are based conducted in
or a
country or
currency
than those of the
reporting entity .

Accounting Procedures
① Receive foreign entity 's financial statements
② Translate the statements in foreign currency to PHP
Accounts in
Appropriate Accounts in
foreign currency exchange rate PHP equivalent
③ Consolidate the translated foreign entity's amounts which , are now stated
in PHP , with the PH
Company 's accounts
F- t $ → F- = F- t#

parent subsidiary consolidated F.S .

Not
Account Titles
a
Hyper inflationary Hyperinflationary
economy economy
rate
Assets and liabilities even goodwill
Issuance
closing closing rate
rate
shareholder 's
Equity Dividends

Treasury Shares
Historical rate
closing
rate
É
Revenue and Expenses
dapat
Average
transaction rate
rate
talaga gagamitin pen since
closing
É a raw ① restate >
② translate
araw
may bentahan , mas okay na
-

average

i Retained Earnings -
Kasi lahat
ng
accounts sa Kanya 1st
yr of
acqui = historical
hapuPunta , syanagw consolidate subsequent yr =
translated balance
Wala
last period
syapinanggalingan

NOTES :
① Hyperinflation Economy -

the standard does not establish an absolute role However .

,
when cumulative inflation over three years approaches or exceeds 100% ,
it must be conceded that the
economy is
suffering from
hyperinflation
② When the financial statements of a
foreign operation are as of a different date from that of the
reporting entity ,
the assets and liabilities are translated
At the
exchange rate at the end of
reporting period of
foreign operations .

③ Translation Adjustment OU not

recognized in
profit or loss because the
changes in exchange rates have or no direct effect on the present and future cash flows from
operations Upon disposal of
.

foreign operation , cumulative translation shall be reclassified to profit or boss when the gain or boss disposal is on

Miognized .

* income and expenses @ average rate vs assets and liab @ closing rate reasons bat nagaarise
*
opening
* other
net asset @

changes to
exchange
equity in the
rate different from that

foreign entity
at which it is
previously reported } Yung exchange differences
[translation adjustment)
 Derivatives financial that derives its valve from the movement
commodity
-
instrument in

price , foreign exchange rate and interest rate of an

underlying asset or

financial instrument
characteristics
① the value of the derivative
changes in response to the
change
" "
variable
in an
underlying
② the derivative requires either no initial net investment or an initial small net investment
③ the derivative is settled at a future date
readily by a net cash
payment

Purpose :
Types Of Financial Risk Measurement
to financial risk ① Price
manage Risk
Initially
>
Subsequently
* ② Credit Risk
Change in
commodity price
*
change in cash flows ③ Interest Rate Risk Fair Value Fair value
>
*
foreign currency exposure
④ Foreign Currency Risk
(may be zero ) ( As in Fv)

Hedging -
is a means of protecting a financial loss or the
structuring of a transaction to

reduce risk

designating one or more

hedging instruments that the
change in Fair value
-

so or

cash flows is offset, in whole to the in Fair Value

an or in
part , change or

cash flows of a
hedge item

I | I

gain a

principal contract
entity derivative contract

Hedge item hedging instrument

of Derivative
Examples
① Interest Rate swap -
is a contract
whereby two parties agree to exchange cash flows for future interest

payments based on a contract of loan

② Forward contract -
is an
agreement between two parties to
exchange a specified amount of

commodity security,
or
foreign currency on a
specified date in the future at

a specified price or
exchange rate

③ Futures contract -

is a contract to purchase or sell a

specified commodity at some future

date at a
specified price
④ Option -
is a contract that
gives the holder the right to purchase or sell an asset at a

specified price during a definite period at some future time

 Derivatives and Hedging
stock price
interest rate

underlying exchange rate

commodity price

record FVTPL 7 PGL

Speculative
1. >

uses
2.
Hedging > apply hedge accounting

Basic of Derivatives
Types
1.) Forward contracts private transactions OTC

}
2) Futures contracts traded in an
exchange
Walang gantosa PH
call to
buy edging
"
}
-

3) Options
have to
disadvantage is you
pay for premium Instruments
put to sell
-
a

4) Swaps
fixed to floating
a. Interest Rate swap
floating to fixed

FV CF Explanation
since fixed
① Firm Fvsya na

wmmitment \ yung cashflow

Hedge dimopaalam
since

② Highly probable future transaction yungintwwloutiowmo

immature

items hedging the Fu since

③ Fixed
ur

to
floating fixed na CF

④ Floating to fixed ✓
Fair Value Hedge Cash Flow
Hedge
NOTE :
Yung basis sa FV hedge 4 hedging the
changes
in the hedging the variability
in cash flows
fair values
OF
hedge is the
hedge item
Effective > 00
not the
hedging instrument Ineffective > PGL
 FV
hedge OF
hedge
Mark
Hedging Instruments Mark to market > PGL to market > Oct
-
-
-
-

" "
normal
Hedge items Mark -
to -
market > PGL accounting