Hedged transaction in a foreign currency Refer to the facts in P15.1. Suppose that on receipt of the order from the Swiss retail co-op on 15 October x5, Priore decides to hedge the SFr 2 million receivable to protect itself against appreciation of the euro. On that date, it enters into a four-month forward contract with its bank. The forward rates (for 15 February x6) on the order, delivery, and year-end dates are given below:

15 October x5 SFr 1.450 : A1 1 December 1.476 31 December 1.614 On 15 February x6, Priore receives SFr 2 million from the retail co-op. The bank pays Priore A59,178

[(SFr 2 million / SFr 1.45) − (SFr 2 million / SFr 1.515)] in settlement of the forward contract.

Required Show the accounting entries that Priore makes on the order, delivery, year-end and settlement dates with respect to the sale and forward contracts. What is the hedging income or expense on the forward contract it recognises in x5? In x6? What is the exchange gain or loss on the sale contract it recognises in x5? In x6?

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