Hedged firm commitment; hedged highly probable forecast transaction; hedged recognised liability; and borrowings and interest attributable to
Question:
Hedged firm commitment; hedged highly probable forecast transaction; hedged recognised liability; and borrowings and interest attributable to a qualifying asset LO3, 7, 10 Aloha Ltd is an Australian company that purchases inventories and specialised equipment from US suppliers. The company’s functional currency is A$ and its financial year ends on 30 June 2020. The company entered various transactions denominated in US$ during the year. Assume a discount rate of 0% for fair value calculations. Relevant exchange rates are as follows. Spot rate Forward rate for 31/8/2020 1 Jan. 2020 A$1 = US$0.90 A$1 = US$0.88 1 Mar. 2020 A$1 = US$0.84 A$1 = US$0.81 1 May 2020 A$1 = US$0.80 A$1 = US$0.78 30 June 2020 A$1 = US$0.75 A$1 = US$0.72 31 Aug. 2020 A$1 = US$0.82 A$1 = US$0.82
(a) On 1 March 2020, Aloha Ltd entered into a firm commitment with a US company to build a new equipment item for US$1 800 000. On 31 August 2020, the item of equipment is delivered and installed and recognised as an asset in Aloha Ltd’s accounting records. On 1 March 2020, Aloha Ltd entered a 6-month forward contract to buy US$1 800 000 for settlement on 31 August 2020. The forward contract is designated as a hedging instrument for an unrecognised firm commitment.
(b) On 31 August 2020, Aloha Ltd acquired inventories, as normal around this time of year, from a US supplier for US$5 000 000. On 1 January 2020, Aloha Ltd entered an 8-month forward contract to buy US$5 000 000 for settlement on 31 August 2020. The forward contract is designated as a hedging instrument for a highly probable forecast inventories purchase transaction.
(c) On 1 May 2020, Aloha Ltd acquired inventories from a US supplier for US$500 000. The invoice is paid in full on 31 August 2020. On 1 May 2020, Aloha Ltd entered a 4-month forward exchange contract to buy US$500 000 for settlement on 31 August 2020. The forward contract is designated as a hedging instrument for a recognised liability.
(d) On 1 January 2020, Aloha Ltd commenced the construction of an item of specialised plant. The estimated construction period for the plant is 18 months. On 1 January 2020, Aloha Ltd borrowed US$18 000 000 to finance the construction of the plant. The interest on the borrowings is 10% p.a. paid at the end of each year. The average exchange rate for the period 1 January 2020 to 30 June 2020 is A$1.00 = US$0.825. Required Prepare the entries of Aloha Ltd to account for its foreign currency transactions in accordance with AASB 121/IAS 21. Assume a 0% discount rate for fair value calculations.
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Financial Reporting
ISBN: 978-0730363361
2nd Edition
Authors: Janice Loftus ,Ken Leo ,Sorin Daniliuc ,Belinda Luke ,Hong Nee Ang ,Karyn Byrnes