Notesale: Turn your study into money

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Foreign currency – a currency other than the functional currency of the entity
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1
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2
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3
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Import Transaction
-

A transaction wherein the entity acquires or buys goods outside its country of origin
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We use the selling rate to record the transaction and to compute the foreign currency
exchange gain or loss
...


-

Forex gain/loss:
o AP
Forex Gain

xx

o Forex Loss
AP

xx

xx

xx

*To compute the Forex gain or loss, get the change in the selling spot rate then
multiply the foreign currency denominated payable
...


Export Transaction
-

A transaction wherein the entity sells goods outside its country of origin
...

We use the buying rate to record the transaction and to compute the foreign currency
exchange gain or loss
...


-

Forex gain/loss:
o AR
Forex Gain

xx

o Forex Loss
AR

xx

xx

xx

*To compute the Forex gain or loss, get the change in the selling spot rate then
multiply the foreign currency denominated receivable
...

*For Interest Receivable to have Forex gain/loss, both dates should have accrued Interest
Receivable
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Hedge item – an asset, liability, firm commitment, highly probable forecast transaction, or net
investment in a foreign operation
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Forward Contract
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Date entered into a Forward Contract:
o Forward Contract Receivable
Forward Contract Payable

xx
xx

*The Forward Contract Receivable and Payable are initially recorded at the
forward rate on the date when the entity entered the contract
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*If the exposed account in the hedge item is a liability, therefore the FC
Receivable may increase or decrease due to the changes in the forward rate whereas the FC
Payable will remain unchanged or fixed
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-

Settlement Date:
o Cash
Forward Contract Receivable
o Forward Contract Payable
Cash

xx
xx
xx
xx

*If the exposed account in the hedge item is a liability, therefore, to compute the Cash received,
use the selling spot rate whereas the Cash paid is the amount of fixed FC Payable
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Firm Commitment – Contract or agreement to purchase or sell goods to a foreign entity in the
future, to be settled in the foreign currency; the settlement will not be made until after the
passage of title of the goods
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There is an underlying asset/liability in the Hedge item, therefore, there will be forex
gains and losses in the Hedge item
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Cash Flow Hedge (Anticipated)
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No binding contract because it is a hedge of a highly probable forecasted cashflow
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Gains and losses of the Effective (Intrinsic Value) portion will go to OCI while gains and
losses of the Ineffective Portion (Time Value) will go to P/L
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o Call option – Buy
o Put option – Sell

Strike Price – option price to buy or sell
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Difference must be favorable to the entity
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- Ineffective portion
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Hedging Instrument Gain/Loss – Changes in FMV of Option
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