On 30 September 20x5, Singco entered into a non-cancellable contract to purchase inventory for 100,000 euros to be delivered on 31 January 20x6 with payment due on 31 March 20x6. Singco was concerned that the euro might appreciate by the time the inventory transaction took place. To hedge against the risk of an appreciation of the euro, Singco entered into a six-month forward exchange contract on 30 September 20x5 to purchase 100,000 euros on 31 March 20x6. It designated the forward exchange contract as a cash flow hedge of a firm commitment to purchase inventory on 31 January 20x6 and the 100,000 euros payable arising from the transaction. Since the critical terms matched closely, the hedge was expected to be highly effective.

The inventory was delivered on 31 January 20x6 as scheduled and Singco settled the resulting accounts payable on 31 March 20x6. Singco’s functional and presentation currency is the dollar and its financial year-end is 31 December. Relevant exchange rates are as follows:

Assume the following:

(a) A discount rate of 6% per annum.

(b) Singco’s accounting policy was to apply basis adjustment under IFRS 9 paragraph 6.5.16 to non-financial assets that resulted from hedged transactions. Singco designates the hedge as a cash flow hedge in accordance with the alternative permitted under IFRS 9 paragraph 6.5.4.

Required
1. Singco designated the hedging relationship for changes in the spot rate element of the forward contract, that is, the interest element in the forward contract was excluded from the measurement of hedge effectiveness. Prepare the journal entries to record the transactions from 30 September 20x5 to 31 March 20x6. (Hint: Treat the firm commitment as though it is a forecast transaction.)
2. Ignore (a) above. Singco designated the hedging relationship as being for changes in the fair value of the forward contract; that is, the interest element in the forward contract was not excluded from the measurement of hedge effectiveness. Prepare the journal entries to record the transactions from 30 September 20x5 to 31 March 20x6. (The hint in part (1) applies.)

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Date 30 September 20x5..... 31 December 20x5........ 31 January 20x6.... 31 March 20x6..... SECUR Spot rate $ to euro 2.915 2.937 2.920 2.931 Forward rate to 31 March 20x6 2.980 2.969 2.926 2.931