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Problem A.

On October 31, 2013, Pyramid Philippines took delivery from a British firm of inventory costing
725,000. Payment is due on January 31, 2014. At the same time, Pyramid paid P8,250 cash to acquire a 90-day
call option for 725,000.
October 31, 2013
December 31, 2013
January 31, 2014
Strike Price
P 3.60
P 3.60
P 3.60
Spot Rate
3.61
3.62
3.64
Forward Rate
3.72
3.77
3.78
Fair Value of Call Option P 8,250
P 17,000
?
Given the information above, compute for the following:
Foreign exchange gain or loss on option contract due to change in time value on December 31, 2013 if changes in
the time value will be excluded from the assessment of hedge effectiveness, and foreign exchange gain or loss
due to change in intrinsic value on January 31, 2014 if changes in the time value will be excluded from the
assessment of hedge effectiveness.
A. P1,500 gain ; P7,250 gain
B. P1,500 gain ; P14,500 gain
C. P5,250 loss ; P7,250 gain
D. P5,250 loss ; P14,500 gain
Problem B. On May 1, 2013, PERFECT Co. anticipated the purchase of 85,000 units of merchandise from a
foreign vendor. The purchase would probably occur on October 28, 2013 and require the payment of 1,250,000
foreign currencies (FC). On May 1, 2013, the company purchased a call option to buy 1,250,000FC at a strike
price of 1FC = P0.27. An option premium of P14000 was paid. Changes in the value of the option will be excluded
from the assessment of hedge effectiveness. For the year 2013, the following rates are as follows:
May 1
May 31
June 30
October 28
Spot Rate
P 0.25
P 0.28
P 0.30
P 0.32
Strike Price
0.27
0.27
0.27
0.27
FV of call option
P14,000
P17,500
P39,000
?
The foreign exchange gain (loss) on option contract to be recognized in (1) equity and (2) earnings on June 30:
A. P(25,000) ; P3,500
B. P(37,500) ; P21,500
C. P25,000 ; P(21,500)
D. P37,500 ; P(3,500)
Problem C. USX Company bought merchandise for 125,000 from a French company on December 1, 2013.
Payment in Euros was due on February 28, 2014. On the same date, USX entered into a 90-day futures contract
to buy 125,000 from a bank. Exchange rates for Euros on different dates are as follows:
December 1, 2013
December 31, 2013
February 28, 2014
Spot Rate
P 91.40
P 92.70
P 91.90
30-day futures
92.30
92.50
93.20
60-day futures
91.80
92.20
92.60
90-day futures
90.60
92.60
93.40
How much is the forex gain/loss on the forward contract on February 28, 2014?
A. P1,000,000 loss
B. P100,000 gain
C. P37,500 gain

D. P37,500 loss
Problem D. Given the following information (For 1):
SPOT RATES
Bid Rate
Offer Rate
Transaction Date
P 43
P 45
Balance Sheet Date
48
49
Settlement Date
49
55

Transaction Date
Balance Sheet Date
Settlement Date

120-day futures
P 43
42
45

FORWARD RATES
90-day futures
60-day futures
P 45
P 44
46
47
48
49

30-day futures
P 46
49
52

On October 1, 2013, KEL Co. sold merchandise worth 2,750 to a Japanese company, payable on January 31,
2014. To hedge this foreign currency exposure, KEL contracted to sell 2,750 on October 1, 2013 to be delivered
on January 31, 2014. On balance sheet date, how much is the net forex gain/loss from this hedging activity?
A. P2,750 loss
B. P2,750 gain
C. P30,250 loss
D. P30,250 gain
Problem E. Condensed statements of financial position of Acquirer Corp. and Acquired Corp. as of December 31,
2013 are as follows:
Acquirer
Acquired
Current assets
P 175,000
P 65,000
Noncurrent assets
725,000
425,000
Total assets
P 900,000
P 490,000
Liabilities
Common stocks, P20 par
Additional Paid-in capital
Retained earnings

P 65,000
550,000
35,000
250,000

P 35,000
300,000
25,000
130,000

On January 1, 2014, Acquirer Corp. issued 35,000 stocks with a market value of P25/share for the assets and
liabilities of Acquired Corp. The book value reflects the fair value of the assets and liabilities, except that the
noncurrent assets of Acquired have fair value of P630,000 and the noncurrent assets of Acquirer are overstated by
P30,000. Contingent consideration, which is determinable, is equal to P15,000. Acquirer also paid for the stock
issuance costs worth P34,000 and other acquisition costs amounting to P19,000. How much is the combined total
assets after the merger?