Purchase of inventories paid in instalments; borrowing hedged by forward contract   LO3, 6, 10 You are the finance director of the Australian listed company Fire Ltd, which has a functional currency in A$. Fire Ltd purchases goods from Hong Kong and has borrowings from a US bank. The company’s financial year ends on 30 June 2020. Fire Ltd entered the following transactions during the year.

(a) Fire Ltd purchased inventories from a Hong Kong supplier for HK$2 700 000 on 15 April 2020. The purchase contract is settled in three equal instalments of HK$900 000. The following exchange rates apply. 15 Apr. 2020 Date of purchase HK$2 700 000 A$1 = HK$5.99 31 May 2020 1st payment of HK$900 000 A$1 = HK$6.01 30 June 2020 End of the reporting period A$1 = HK$6.21 31 Aug. 2020 2nd payment of HK$900 000 A$1 = HK$6.18 30 Sept. 2020 3rd payment of HK$900 000 A$1 = HK$6.24

(b) On 1 January 2020, Fire Ltd borrowed US$6 000 000 from an investment bank in the United States for a 12-month period. The borrowing has a fixed rate of interest at 10% p.a. payable at 6-month intervals. On 1 April 2020, Fire Ltd entered a 9-month forward contract to buy US$5 000 000 in order to hedge against the foreign exchange risk on the US$ loan principal. The following exchange rates apply. Date Spot rate Forward rate for 31/12/2020 1 Jan. 2020 A$1 = US$0.89 A$1 = US$0.84 1 Apr. 2020 A$1 = US$0.86 A$1 = US$0.82 30 June 2020 A$1 = US$0.85 A$1 = US$0.79 31 Dec. 2020 A$1 = US$0.80 A$1 = US$0.80 Assume a 0% discount rate for fair value calculations. Required Prepare the entries of Fire Ltd to account for its foreign currency transactions in accordance with AASB 121/IAS 21.