1.

The best definition for direct quotes would be “direct quotes measure
a. exchange rates at a future point in time”
b. how much domestic currency must be exchanged to receive 1 foreign currency”
c. how much foreign currency must be exchanged to receive 1 foreign currency”
d. currency or spot rates”

2. The date of transaction is

a. The date when liability or receivable is settled
b. The date of recording the transaction in the books of the company
c. The date when cash is transferred
d. The date when the transaction is recognized

3. A bank dealing in a foreign currency tells you that the foreign currency will buy you P0.75. The bank has given you
a. An indirect quote c. A forward rate
b. A direct quote d. The official (fixed) rate

4. A Philippine entity purchases equipment from a US company. The US company requires payment in US dollar. In this
transaction, the dollar would be referred to as the
a. Selling currency c. Denominated currency
b. Purchasing currency d. All of the above

5. A company should record the foreign currency transaction initially at

a. Average exchange rate at the date of transaction
b. Spot rate at the date of invoice
c. Spot rate at the date of transaction
d. Closing spot rate as of the balance sheet date

6. The presentation currency is

a. Used in the parent’s and in the group’s consolidated financial statements
b. The currency which results to largest exchange rates
c. The currency of the country where the entity’s operations are based
d. The local currency of a foreign operation in which it reports

7. Which of these considerations would not be relevant in determining the entity’s functional currency?
a. The currency in which finance is generated
b. The currency in that influences the costs of the entity
c. The currency that is the most internationally acceptable for trading
d. The currency in which receipts from operating activities are retained

8. If the company change its functional currency, it will be accounted for

a. Retrospectively c. It is not allowed
b. Prospectively d. Either b or c

9. The opening net investment of the period needs to be restated at the

a. Historical exchange rate c. Average exchange rate
b. Closing exchange rate d. Previous year’s exchange closing rate

10. A spot rate may be defined as

a. The price a foreign currency can be purchased or sold today
b. The price today at which a foreign currency can be purchased or sold in the future
c. The forecasted future value of a foreign currency
d. The Peso value of a foreign currency

11. In translating the financial statements of a foreign operation, closing spot rate is used for:
a. Sales c. Share premium
b. Cost of goods sold d. Bonds payable

12. What is a company’s functional currency?

a. The currency of the primary economic environment in which it operates
b. The currency of the country where it has its headquarters
c. The currency in which it prepares its financial statements
d. The reporting currency of its parent for a subsidiary
13. A forward exchange contract is being transacted at a premium if the current forward rate is
a. Less than the current rate c. Greater than the expected spot rate
b. Less than the expected spot rate d. Greater than the current spot rate

14. Which of the following factors influences the spread between the forward and spot rates?
a. The length of the forward exchange contract
b. The current cross rate between the two currencies
c. Which currency is denominated as the domestic currency
d. All are factors that may influence the spread

15. What is the purpose of using a hedge?

a. To eliminate any foreign exchange losses
b. To maximize any foreign exchange gains
c. To limit exposure to foreign exchange rates
d. To allow a domestic entity to participate in transactions with foreign entities

16. Gains and losses of the effective portion of hedging instrument will be recognized in current earnings in each
reporting period for which of the following?
I. Fair value hedge
II. Cash flow hedge
a. Yes, No c. No, No
b. Yes, Yes d. No, Yes

17. Hedge accounting is permitted for all of the following types of hedges except
a. Unrecognized firm commitment c. Investments through OCI
b. Trading securities d. Net investment in foreign operation

18. A hedge of the exposure changes in the fair value of a recognized asset or liability, or an unrecognized firm
commitment is classified as a
a. Cash flow hedge c. Underlying
b. Foreign currency hedge d. Fair value hedge

19. The forward rate may be defined as

a. The price a foreign currency can be purchased or sold today
b. The price today at which a foreign currency can be purchased or sold in the future
c. The forecasted future value of a foreign currency
d. The Peso value of a foreign currency

20. Gains and losses on the hedge asset/liability and the hedge instrument for a fair value hedge will be recognized
a. In current earnings
b. In other comprehensive income
c. On a cumulative basis from the change in expected cash flows from the hedged instrument
d. On the balance sheet either as an asset or a liability

21. A forward contract may be used for which of the following?

I. A fair value hedge of an asset
II. A cash flow hedge of an asset
III. A fair value hedge of a liability
IV. A cash flow hedge of a liability
a. I and III c. I and II
b. II and IV d. I, II, III and IV

22. Which of the following statements is true concerning hedge accounting?

a. Hedges of foreign currency firm commitments are used for future sales only
b. Hedges of foreign currency firm commitments are used for future purchases only
c. Hedges of foreign currency firm commitments are used for current purchases or sales
d. Hedges of foreign currency firm commitments are used for future purchases or sales

23. What does a put option give the holder the right to do?
a. Enter into a currency swap c. Buy a designated foreign currency
b. Sell a designated foreign currency d. Trade in the commodities market
24. If the price of the underlying is greater than the strike price or exercise price of the underlying, the call option is
a. At the money c. On the money
b. In the money d. Out of the money

25. Which of the following hedges record gains/losses related to the hedge instrument in net income?
I. Forward contract hedge
II. Option used as hedge of a foreign currency firm commitment
III. Foreign currency option used as a cash flow hedge
a. I, II and III c. I and II
b. I and III d. II only

26. Which of the following statements is correct?

Statement 1: Under PFRS 3, joint venture is an example of business combination
Statement 2: The measurement period is the period prior to the acquisition date when the fair value of the net assets of the
acquired entity is determined
a. Statement 1 is correct c. Both statements are correct
b. Statement 2 is correct d. Both statements are false

27. Which of the following statements is correct?

Statement 1: In a business combination a transfer of consideration by acquirer is required
Statement 2: Gain from bargain purchase or acquisition is recognized by the acquirer as gain on its consolidated financial
statements
a. Statement 1 is correct c. Both statements are correct
b. Statement 2 is correct d. Both statements are false

28. Which of the following statements is correct?

Statement 1: An entity shall account for each business combination by applying equity method
Statement 2: An entity shall account its investment in subsidiary using only cost method
a. Statement 1 is correct c. Both statements are correct
b. Statement 2 is correct d. Both statements are false

29. If an entity acquired an asset which is not considered as a business, the entity shall account the transaction as:
a. An adjusting events c. An asset acquisition
b. A business combination d. A non-controlling interest

30. Which of the following items must not be measured at fair value under PFRS 3 Business Combination, when the
acquirer entity purchases a business from another entity?
a. Consideration paid for the assets
b. Consideration paid for the contingent liabilities
c. Consideration paid for the equity of the acquired entity
d. Consideration paid for the liabilities

31. Under PFRS 3 Business Combination, any future losses and other costs expected to be incurred as a result of business
combination shall be:
a. Expense immediately
b. Capitalized and amortized over the term of liabilities
c. Included in the acquisition cost
d. Ignored

32. The fair value of liabilities acquired in a business combination is measured at:
a. Market value c. Present value of future cash outflows
b. Liquidation value d. Net realizable value

33. Which of the following acquisition related costs is not considered as expense as incurred?
a. Finder’s fee c. Valuation fees
b. Cost of issuing debt d. Accounting fees

34. The following are acquisition related costs that is not considered as expenses in the period in which they are incurred,
except:
a. Audit fee for SEC registration of stock issue c. Listing fees in issuing new shares
b. Cost of stock certificates d. Cost to issue debt securities
35. It is the type of combination wherein two or more entities merge into a single entity which shall be the one of the
combining entities
a. Joint arrangements c. Statutory consolidation
b. Statutory merger d. Stock acquisition

(36 to 40) On October 1, 2020, Fred Company acquired all the assets and assumed all the liabilities of Cheng Company by
issuing 20,000 shares with a fair value 67.50 per share and an obligation to pay a contingent consideration with a fair
value of 750,000. In addition, Fred paid the following acquisition related costs:
Legal fees 105,600
Audit fee for SEC registration of stock issue 320,400
Costs of stock certificates 35,000
Broker’s fee 49,000
Other direct cost of acquisition 50,000
General and allocated expenses 14,000

The Statement of Financial Position as of September 30, 2020 of Fred and Cheng, together with the fair market value of
the assets and liabilities are presented below:
Fred Company Cheng Company
Book Value Fair Value Book Value Fair Value
Cash 640,000 640,000 45,000 45,000
Accounts receivable 360,000 335,000 70,000 54,000
Inventories 475,000 390,000 87,000 78,000
Prepaid expenses 25,000 13,500 5,000
Land 2,000,000 2,900,000 900,000 1,550,000
Building 800,000 900,000 723,000 768,000
Equipment 700,000 585,000 361,500 360,000
Goodwill 300,000
Total assets 5,000,000 5,750,000 2,500,000 2,860,000

Accounts payable 312,500 312,500 200,000 200,000

Notes payable 937,500 980,000 700,000 765,000
Share capital, 50 par 2,000,000 850,000
Share premium 1,000,000 400,000
Retained earnings 750,000 350,000
Total equities 5,000,000 2,500,000

Compute for the balances that will be shown on the October 1, 2020 statement of financial position of the surviving
company.

36. What is the total amount of goodwill to be reported by the surviving company?
a. P0 c. 95,000
b. 205,000 d. 505,000

37. What is the total amount of cash to be reported by the surviving company?
a. 685,000 c. 640,000
b. 66,000 d. 111,000

38. What is the total amount of liabilities to be reported by the surviving company?
a. 2,215,000 c. 1,250,000
b. 2,965,000 d. 2,452,500

39. What is the total amount of retained earnings to be reported by the surviving company?
a. 480,000 c. 526,000
b. 540,000 d. 531,400

40. What is the total amount of assets to be reported by the surviving company?
a. 7,015,000 c. 7,118,000
b. 6,980,000 d. 7,491,000
(41 to 45) Marie Company has gained control over the operations of Sol Company by acquiring 85% of its outstanding
capital stock for 2,580,000. This amount includes a control premium of 30,000. Acquisition expenses paid, direct and
indirect amounted to 83,000 and 42,000 respectively.
Marie Company Sol Company
Book Value Book Value
Cash 3,541,500 128,000
Accounts receivable 300,000 325,000
Inventories 550,000 360,000
Prepaid expenses 148,500 125,000
Land 2,350,000 879,000
Building 1,560,000 558,000
Equipment 300,000 185,000
Goodwill 300,000
Total assets 8,750,000 2,860,000

Accounts payable 675,000 253,000

Notes payable 1,400,000 730,000
Capital stock, 50 par 3,400,000 800,000
Additional paid in capital 1,575,000 600,000
Retained earnings 1,700,000 477,000
Total equities 8,750,000 2,860,000

The following was ascertained on the date of acquisition for Sol Company:
- The value of receivables and equipment has decreased by 25,000 and 14,000 respectively.
- The fair value of inventories is now 436,000 whereas the value of land and building has increased by 471,000 and
107,000 respectively.
- There was an unrecorded accounts payable amounting to 27,000 and the fair value of notes is 738,000.

Compute for the following balances to be presented in the consolidated statement of financial position at the date of
business combination.

41. What is the total amount of cash to be reported in the consolidated financial statement?
a. 964,500 c. 3,669,500
b. 3,541,500 d. 1,089,500

42. What is the total amount of goodwill to be reported in the consolidated financial statement?
a. 573,000 c. 873,000
b. P0 d. 300,000

43. What is the total amount of liabilities to be reported in the consolidated financial statement?
a. 955,000 c. 3,058,000
b. 3,093,000 d. 2,001,000

44. What is the total amount of assets to be reported in the consolidated financial statement?
a. 9,875,000 c. 10,112,000
b. 10,093,000 d. 9,215,000

45. What is the total amount of shareholders’ equity to be reported in the consolidated financial statement?
a. 7,000,000 c. 8,200,000
b. 7,500,000 d. 8,000,000

46. Goodtimes Company acquired 75% of Easy Company’s common stock for 510,000 cash. At that date, Easy reports
identifiable assets with a book value of 1,040,000 and a fair value of 1,280,000, and it has liabilities with book value and
fair value of 716,000. How much is the goodwill or (gain on acquisition) arising on consolidation if non-controlling
interest is measured at fair value and that control premium of 30,000 is included in the purchase price?
a. 106,000 c. (87,000)
b. 116,000 d. 57,000
(47 to 48) ABC Corp. issued 120,000 shares of 25 par common stock for all outstanding stock of XYZ in a business
combination consummated on July 1, 2015. ABC common stock was selling at 40 per share at that time of the
consummation of the combination. XYZ’s net assets is 3,800,000 at book value. Out of pocket costs of the combination
were as follows:
Legal fees:
For business combination 12,000
For SEC registration 14,500
SEC registration costs 18,200
Printing costs of stock certificates 9,400
Finder’s fee 27,000
CPA audit fees for SEC registration 19,000

47. If the combination is treated as acquisition method, what is the total amount of the cost of investment?
a. 4,853,500 c. 4,800,000
b. 4,839,000 d. 4,872,500

48. Assuming that ABC Corp is an SME, what is the total amount of the cost of investment?
a. 4,853,500 c. 4,800,000
b. 4,839,000 d. 4,872,500

49. On March 1, 2015, Steve Co. paid 620,000 for all common stock of John Corp. in a transaction properly accounted
under purchase method. The recorded assets and liabilities of John Corp. on March 1, 2015 are:
Cash 60,000
Inventory 180,000
Property, plant and equipment (net of Acc. Dep of 220,000) 320,000
Goodwill 100,000
Liabilities (120,000)
Net assets 540,000

On March 1, 2015, John’s inventory had a fair value of 150,000 and the property, plant and equipment (net) had a fair
value of 380,000. What is the amount of goodwill resulting from the business combination?
a. 150,000 c. 50,000
b. 120,000 d. 20,000

50. P Corp acquired 70% of the voting common stock of S Co. at the time when S Co. book values and fair values were
equal. Separate income of P and S Co. for 2015 are as follows:
P Corp S Co.
Sales 700,000 400,000
COGS 400,000 200,000
OPEX 120,000 100,000
Separate income 180,000 100,000

Intercompany sales from P to S for 2014 are summarized as follows:

Cost Price Unsold at year end
Intercompany sales - 2014 250,000 390,000 40%
Intercompany sales - 2015 175,000 275,000 50%

The consolidated income statement will show COGS of

a. 350,000 c. 340,000
b. 419,000 d. 319,000

51. On Jan. 1, 2013, P Corp. purchased 80% of the outstanding shares of S Corp. by paying 320,000 with an allocated
excess of 20,000 attributable entirely to undervalued equipment with remaining life of 10 years. On Jan. 1, 2015, S Corp.
had 150,000 of capital stock and 300,000 retained earnings. Also on the same date, P Corp. had 1,000,000 of capital stock
and 700,000 of retained earnings.

During the year, P sold merchandise to S for 60,000 and in turn, purchased 40,000 from S. Intercompany sales of
merchandise were made at the following gross profit rates:
Sales made by P 25% based on cost
Sales made by S 20%

On December 31, 2015, 30% of all intercompany sales remained in the ending inventory of the purchasing affiliate. The
beginning inventory of P includes 2,500 worth of merchandise acquired from S on which S reported a profit of 1,000. The
beginning inventory of S also includes 3,000 merchandise acquired from P at 35% mark up.
The net income from own operations and dividends for 2015 using the cost method were as follows:
NI Dividends
P 100,000 60,000
S 30,000 10,000

The NCINIS for 2015 should be

a. 5,320 c. 5,160
b. 5,720 d. 5,220

(52 to 56) On January 1, 2020, A Company acquired 80% interest in X Company by issuing 16,000 shares with fair value
of 60 per share and par value of 40 per share. The financial statements of A Company and X Company on the acquisition
date are shown below:
A Company X Company X Company
Book Value Book Value Fair Value
Cash 128,000 64,000 64,000
Accounts receivable 384,000 153,600 153,600
Inventory 512,000 294,400 396,800
Equipment 2,560,000 640,000 768,000
Accumulated depreciation (256,000) (128,000) (153,600)
Total assets 3,328,000 1,024,000 1,228,800

Accounts payable 256,000 76,800 76,800

Bonds payable 384,000
Ordinary share 1,536,000 640,000
Share premium 512,000
Retained earnings 640,000 307,200
Total liabilities & equity 3,328,000 1,024,000

A Company elects to measure NCI as its proportionate share in X Company’s net identifiable assets. The equipment has a
remaining useful life of 4 years from January 1, 2020.

The separate statement of financial position on December 31, 2020 of A and X is presented as follows:
A Company X Company
Cash 294,400 729,600
Accounts receivable 960,000 281,600
Inventory 1,344,000 192,000
Investment in X 960,000
Equipment 2,560,000 640,000
Accumulated depreciation (768,000) (256,000)
Total assets 5,350,400 1,587,200

Accounts payable 550,400 384,000

Bonds payable 384,000
Ordinary share 2,176,000 640,000
Share premium 832,000
Retained earnings 1,408,000 563,200
Total liabilities & equity 5,350,400 1,587,200

The statement of profit or loss of A Company and X Company for year 2020 is shown below:
A Company X Company
Sales 3,840,000 1,536,000
COGS (2,112,000) (921,600)
Gross profit 1,728,000 614,400
Depreciation expense (512,000) (128,000)
Distribution costs (409,600) (230,400)
Interest expense (38,400)
Profit 768,000 256,000

A Company and X Company did not declare any dividends in 2020. There were also no intercompany transactions. The
group determined that there is no goodwill impairment.
52. How much is the consolidated assets as of January 1, 2020?
a. 4,403,200 c. 4,604,800
b. 4,595,200 d. 5,555,200

53. How much is the consolidated shareholders’ equity as of January 1, 2020?

a. 3,878,400 c. 3,840,000
b. 3,888,000 d. 4,364,800

54. How much is the consolidated net income for 2020?

a. 896,000 c. 947,200
b. 768,000 d. 665,600

55. How much is the consolidated assets as of December 31, 2020?

a. 5,947,400 c. 6,092,800
b. 6,060,800 d. 6,102,400

56. How much is the consolidated shareholders’ equity as of December 31, 2020?
a. 4,710,400 c. 4,527,000
b. 4,518,400 d. 4,774,400

57. On June 15, 2015, Alonzo Company purchased merchandise worth 100,000 Swiss Francs from its Swiss supplier
within 30 days under an open account arrangement. Alonzo issued a 30-day 6% note payable in Swiss Francs. On July 15,
2015, Alonzo paid the not in full. The following information on spot rates (P/SF) are provided:
Buying Selling
June 15, 2015 24.03 24.15
July 15, 2015 24.10 24.22

Compute (1) Alonzo’s foreign exchange gain (loss) for the transaction and (2) the amount paid to the Swiss supplier on
July 15, 2015
a. (1) (5,040) (2) 2,415,015
b. (1) (7,000) (2) 2,434,110
c. (1) 12,075 (2) 2,422,050
d. (1) (19,110) (2) 2,427,075

58. On November 2, 2014, NICO entered into firm commitment with Japanese firm to acquire an equipment, delivery and
passage of title on March 31, 2015 at a price of 4,375 yen. On the same date, to hedge against unfavorable changes in
exchange rate of yen. NICO entered into a 150 day forward contract with BPI for 4,375 yen. The relevant exchange rate
were as follows:
11/2/14 12/31/14 3/31/15
Spot rate 37 38 35
Forward rate 40 33 35

How much is the amount debited to the equipment account on the date of:
a. 200,000 ; 11/2/14 c. 185,000 ; 11/2/14
b. 200,000 ; 3/31/15 d. 175,000 ; 3/31/15

59. On December 31, 2015, a foreign subsidiary in HK submitted the following balance sheet stated in foreign currency:
Total assets 140,000 HK$
Total liabilities 28,000
Common stock 70,000
Retained earnings 42,000

The exchange rate are:

Current rate 8.75
Historical rate 8.10
Weighted average rate 8.50

Assuming that the retained earnings of the subsidiary in Dec. 31, 2015 translated to peso is 270,000. What amount of
cumulative translation adjustment is to be reported in the consolidated balance sheet on Dec. 31, 2015?
a. 143,000 c. 136,000
b. 134,000 d. 128,000
60. Pedro of Alabang paid 480,000 for a 40% interest in Guerrero Company of Taiwan on January 1, 2015, when
Guerrero’s net assets totaled 750,000 NT Dollar and the exchange rate for NT Dollar was 1.60. A summary of changes in
Guerrero’s net assets during 2015 were as follows:
NT Dollar Exchange rate
Net assets, January 1 750,000 1.60
Net income for 2015 150,000 1.55
Dividends paid for 2015 50,000 1.54

Pedro anticipated a strengthening of the Philippine peso against the NT Dollar during the last half of 2015, and it
borrowed 300,000 NT Dollar from a Taiwanese bank for one year at 10% interest on July 1, 2015 to hedge its net
investment in Guerrero Company. The loan was made when the exchange rate for NT Dollar was 1.55. The loan was
denominated in NT Dollar and the current exchange rate at December 31, 2015 was 1.50. The other comprehensive
income – translation adjustment in 2015 is:
a. 47,200 c. 17,200
b. 32,200 d. P 0

61. On Nov. 1, 2015, Cars took delivery from US firm of inventory costing US100,000. Payment is due on January 30,
2016. Concurrently, Cars paid P900 to acquire a 90-day option for US100,000.
11/1/15 12/31/15 1/30/16
Spot rate 1.2 1.22 1.23
Strike price 1.2 ? ?
FV of call option ? 2.200 ?

What is the net forex gain (loss) to be recognized by Cars on Dec. 31, 2015?
a. 700 net loss c. 1,300 net loss
b. 1,300 net gain d. 2,000 net gain

62. M Company sold merchandise for 111,200 rupees to a customer in India on November 2, 2015. Collection in India
rupees was due on January 31, 2016. On Dec. 31, 2015, to hedge this foreign currency exposure, M Company entered into
a futures contract to sell 111,200 rupees to a bank for delivery on January 31, 2016. Exchange rates for rupees on different
dates are as follows:
Nov. 2, 2015 Dec. 31, 2015 Jan. 31, 2016
Strike price 81.80 81.80 81.80
Bid spot rate 81.90 80.70 80.10
Offer spot rate 81.70 80.50 80.30
30-day futures 82.30 80.40 83.90
60-day futures 81.80 80.30 82.60
90-day futures 80.60 81.60 83.40
120-day futures 80.10 81.40 82.80

What was the net impact in M Company’s income statement in 2015 as a result of this hedging activity?
a. 22,400 gain c. 33,360 gain
b. 111,200 loss d. 133,440 loss

63. The A Company acquired the B Company, a foreign subsidiary, on September 10, 2012. The fair value of the assets of
B was the same as their carrying amount except for land where the fair value was $50,000 greater than carrying amount.
This fair value adjustment has not been recognized in the separate financial statements of B. Consolidated financial
statements are prepared at year end December 31, 2012 requiring translation of all foreign operation results into the
presentation currency of pesos. The following rates of exchange have been identified:
September 10, 2012 $1.62:P1
December 31, 2012 $1.56:P1
Average rate for the year ended December 31, 2012 $1.60:P1
Average rate for the period Sept. 10 to Dec. 31, 2012 $1.58:P1

What fair value adjustment is required to the carrying amount of land in the consolidated statement of financial position?
a. 30,864 c. 32,051
b. 31,250 d. 31,646

64. Virgo Company acquired 65% of the share capital of a foreign entity on August 31, 2012. The fair value of the net
assets of the foreign entity at that date was 8,240,000 yen. This value was 2,640,000 higher than the carrying value of the
net assets of the foreign entity. The excess was due to the increase in value of non-depreciable land. The functional
currency of the entity is Philippine Peso. The financial year-end of the company is December 31, 2012. The exchange
rates at August 31, 2012 and December 31, 2012 were Yen 2 = P1 and Yen 1.25 = P1, respectively.
What figure for the fair value adjustment should be included in the group financial statements for the year ended
December 31, 2012?
a. 4,284,800 c. 2,678,000
b. 2,112,000 d. 1,320,000

65. The A Company has the pesos as its functional currency functional currency. On October 16, 2012, A ordered some
inventory from a foreign supplier and agreed a purchase price of $160,000. The inventory was received on November 15,
2012. At December 31, 2012, the inventory remained on hand and the trade payable balance for the inventory purchase
remained outstanding. The supplier was paid on January 27, 2013 and the inventory was sold on January 31, 2013. The
following information about exchange rates is available:
October 16, 2012 P1:$2.60
November 15, 2012 P1:$2.50
December 31, 2012 P1:$2.40
January 27, 2013 P1:$2.50

At what amount should the trade payable balance due to the supplier be presented in the statement of financial position of
A at December 31, 2012?
a. 61,538 c. 64,000
b. 66,667 d. 71,111

(66 to 68) On November 1, 2012, Galaxy Philippines took delivery from a Thailand firm of inventory costing 225,000
baht. Payment is due on January 30, 2013. Concurrently, Galaxy Philippines paid 2,025 cash to acquire a 90-day call
option for 225,000 Thailand baht:
11/1/2012 12/31/12 1/30/2013
Spot rate 1.20 1.22 1.23
Strike price 1.20 1.20 1.20
Fair value 2.025 4,950 6,750

66. The foreign exchange gain or loss on option contract (hedging instrument) due to change in time value on December
31, 2012 if changes in the time value will be excluded from the assessment of hedge effectiveness should be:
a. 1,575 loss b. 2,925 gain c. 4,500 loss d. 4,500 gain

67. The foreign exchange gain or loss on option contract (hedging instrument) due to change in intrinsic value on
December 31, 2012 if changes in time value will be excluded from the assessment of hedge effectiveness should be:
a. 4,500 gain b. 1,575 loss c. 2,925 gain d. 1,575 gain

68. The foreign exchange gain or loss on option contract (hedging instrument) on December 31, 2012 if changes in the
time value will be included from the assessment of hedge effectiveness should be
a. 1,575 loss b. 2,925 gain c. 1,575 gain d. 4,500 gain

69. O Company sold merchandise for 90,000 pounds from a vendor in London on November 1, 2012. Payment in British
pounds was due on January 30, 2013. On the same date, O entered into a 90-day futures contract to sell 90,000 pounds
from a bank. Exchange rates for pound on different dates are as follows:
11/1/12 12/31/12 1/30/13
Spot rate 71.4 72.7 71.9
30-day futures 72.3 72.5 73.2
60-day futures 71.8 72.2 72.6
90-day futures 70.6 72.6 73.4

How much is the net forex gain or loss on January 30, 2013?
a. 18,000 loss c. 9,000 loss
b. 18,000 gain d. 9,000 gain

70. On November 1, 2012, S company entered into a firm commitment to acquire a machinery. Delivery and passage of
title would be on February 28, 2013 at the price of HK$2,000. On the same date, to hedge against unfavorable changes in
the exchange rate, S entered into a 120-day forward contract with China bank for HK$2,000. Exchange rate were as
follows:
Spot rate Forward rate
11/1/12 26 24
12/31/12 27 26
2/28/13 29 29

How much is the forex gain or loss recognized by S company on the firm commitment on December 31, 2012?
a. 2,000 gain c. 2,000 loss
b. 4,000 loss d. 4,000 gain