Philippine Corporation of Manila paid P1,920,000 for a 40% interest in Taiwan Company on January 1, 2009 when Taiwan Company’s net assets totaled 3,000,000 NT Dollars and the exchange rate for NT Dollar was P1.60. A summary of changes in Taiwan Company’s net assets during 2009 is as follows:
|
NT Dollar |
Exchange Rates |
|
|
Net assets, January 1 |
3,000,000 |
P1.60 |
|
Net income, 2009 |
600,000 |
1.55 |
|
Dividends paid, 2009 |
200,000 |
1.54 |
Philippine Corporation anticipated a strengthening of the Philippine peso against the NT Dollar during the last half of 2009, and it borrowed 1,200,000 NT Dollars from a Taiwan bank for one year at 10% interest on July 1, 2009 to hedge its net investment in Taiwan Company. The loan was made when the exchange rate for NT Dollar was P1.55. The loan was denominated in NT Dollar and the exchange rate at December 31, 2009 was P1.50.
