Pas 21 Forex - Part 1
Pas 21 Forex - Part 1
Pas 21 Forex - Part 1
OVERVIEW
This standard prescribes how the entity should:
1. Account for foreign currency transactions
Includes:
o Importations
o Exportations
o Lending
o Borrowing
2. Translate financial statements of a foreign operation into entity’s functional currency
(Remeasurement and Translation into Functional Currency)
o Investment in associate (outside the Philippines)
o Investment in subsidiary (outside the Philippines)
o Branches (outside the Philippines)
o Investment in joint venture (outside the Philippines)
Note: Exchange differences would be part of Profit/Loss for both 1 and 2
3. Translate the entity’s financial statements into a presentation currency (OCI)
EXAMPLES:
Problem No. 1: (Importing transaction)
On November 2, 2020, Palitan Company, a Philippine Company, ordered goods from a US supplier for $40,000. The
inventory was shipped and invoiced in December 1, 2020, to be paid in US Dollars on February 28, 2021. The spot rates
for US Dollars are as follow:
Prepare the journal entries to record the above transaction in the books of Palitan Company.
Note:
o There are two spot rates in the problem, the selling spot rate and the buying spot rate (used by foreign exchange dealers). The selling spot rate – selling price
of the foreign currency unit. The buying spot rate is the purchase price of the foreign currency unit.
o In importing transactions always use the selling spot rate.
Problem No. 2: (Exporting transaction)
On November 2, 2020, Palitan Company, a Philippine Company, received an order from a foreign firm for $40,000. Palitan
Company shipped the inventory and billed the foreign firm on December 1, 2020. The foreign firm settled its account on
February 28, 2021 by remitting the payment in US Dollars. The spot rates for US Dollars are as follow:
Prepare the journal entries to record the above transaction in the books of Palitan Company.
Note:
Illustrative Problem:
On November 29, 2019, Alien Co. placed a non-cancellable purchase order with a company based in USA to import
machinery. The machine was shipped on December 1, 2019 and was received by Alien on December 15, 2019. The purchase
price was settled in US$ on January 3, 2020.
1. What is the transaction date if the shipping term is FOB Shipping point?
Translation Method
Purchase of goods are made evenly during the year. Items in the ending inventory were purchased on November 1, 2019.
Revenues and expenses were incurred evenly during 2019. Monroe declared and paid dividends of $3,000 on December 1,
2019. Relevant rates are as follows:
Required:
1. How much is the total assets of Monroe Company on December 31, 2019 translated in Philippine peso?
2. How much is the total liabilities of Monroe Company on December 31, 2019 translated in Philippine Peso?
3. How much is the net income of Monroe Company for 2019 translated in Philippine peso?
4. How much is the total shareholders equity of Monroe Company on December 31, 2019 translated in Philippine
Peso?
5. How much is the ordinary shares of Monroe Company on December 31, 2019 translated in Philippine Peso?
6. How much is the retained earnings of Monroe Company on December 31, 2019 translated in Philippine Peso?
7. As a result of translation process, what amount is recognized on the December 31, 2019 consolidated financial
statements as translation adjustment?
Problem 2
Wright Company, a Philippine Company, has 100% owned subsidiary in Japan that began operation on January 1, 2019.
The subsidiary conducts operation in the company owned building. The subsidiary also maintains its books and records in
Japanese Yen.
Presented below are the subsidiary’s statement of financial position at December 31, 2019 and December 31, 2020 and its
combined statement of comprehensive income and retained earnings for the year ended 2019 and 2020.
Hyperinflationary economy
o If the functional currency is the currency of a hyperinflationary economy, the entity’s financial statements are
restated first in accordance with PAS 29 Financial Reporting in Hyperinflationary Economies before they are
translated under PAS 21 The Effects of Changes in Foreign Exchange Rates
✓ After restatement in accordance with PAS 29, all amount shall be translated at the closing rate at the year-
end date of the most recent period.