ABC Ltd is a Singapore-incorporated company. It prepares and presents annual financial statements with 31 December accounting year ends. Its functional and presentation currency is Singapore Dollar (SS). ABC Ltd had decided to buy a piece of land in Malaysia in order to expand its business into Malaysia in 20x8. On 1 July 20x7, ABC Ltd signed a contract to buy the land from a Malaysian company for RM100,000,000. The transfer of land title and the cash payment were expected to be executed on 30 June 20x8. ABC Ltd was concerned with the risk of changes in exchange rate. In order to hedge the foreign exchange risk, ABC Ltd entered into a forward exchange contract on 1 July 20x7 to buy RM100.000.000 on 30 June 20x8 at an exchange rate of RM1.00 = $0.35. The relevant exchange rates were as follows: On 1 July 20x7 : Spot rate: RM1.00 = S$0.33 12-month forward rate: RM1.00 = S$0.35 On 31 December 20x7 - Spot rate: RM1.00 = S$0.36 6-month forward rate: RM1.00 = 5$0.38 On 30 June 20x8 Spot rate: RM1.00 = 5$0.40 In the hedge documentation, ABC Ltd had designated the change in the fair value of the forward exchange contract based on the forward rate as a hedge against the foreign exchange risk of the firm commitment to buy the land based on the forward rate. On 30 June 20x8, the land was purchased for RM100,000,000, and the forward exchange contract was duly settled. ABC Ltd adopted the policy of including the hedge reserve in the initial cost of land purchased. The Chairman of the board of directors of ABC Ltd had learnt that there are three different accounting treatments that are permissible under FRS 39 Financial Instruments: Recognition and Measurement. The chairman was also concerned with the cash flow impact of hedging and the profit or loss impact of the different accounting treatments. Ignore time value of money as it is deemed to be immaterial, and ignore tax effects, if any, that arise from the above transactions and events. Required: a) For each of the three accounting treatments, apply FRS 39 and account for all the relevant journal entries for ABC Ltd to record the transactions and events in relation to the forward exchange contract and the land purchase from 1 July 20x7 to 30 June 20x8 (indicating clearly whether the gain'loss is recognised as "profit or loss or as other comprehensive income"). (19 marks) (6) Based on the facts of this case, explain to the Chairman the cash flow impact of hedging and the profit or loss impact of applying hedging accounting. (11 marks) ABC Ltd is a Singapore-incorporated company. It prepares and presents annual financial statements with 31 December accounting year ends. Its functional and presentation currency is Singapore Dollar (SS). ABC Ltd had decided to buy a piece of land in Malaysia in order to expand its business into Malaysia in 20x8. On 1 July 20x7, ABC Ltd signed a contract to buy the land from a Malaysian company for RM100,000,000. The transfer of land title and the cash payment were expected to be executed on 30 June 20x8. ABC Ltd was concerned with the risk of changes in exchange rate. In order to hedge the foreign exchange risk, ABC Ltd entered into a forward exchange contract on 1 July 20x7 to buy RM100.000.000 on 30 June 20x8 at an exchange rate of RM1.00 = $0.35. The relevant exchange rates were as follows: On 1 July 20x7 : Spot rate: RM1.00 = S$0.33 12-month forward rate: RM1.00 = S$0.35 On 31 December 20x7 - Spot rate: RM1.00 = S$0.36 6-month forward rate: RM1.00 = 5$0.38 On 30 June 20x8 Spot rate: RM1.00 = 5$0.40 In the hedge documentation, ABC Ltd had designated the change in the fair value of the forward exchange contract based on the forward rate as a hedge against the foreign exchange risk of the firm commitment to buy the land based on the forward rate. On 30 June 20x8, the land was purchased for RM100,000,000, and the forward exchange contract was duly settled. ABC Ltd adopted the policy of including the hedge reserve in the initial cost of land purchased. The Chairman of the board of directors of ABC Ltd had learnt that there are three different accounting treatments that are permissible under FRS 39 Financial Instruments: Recognition and Measurement. The chairman was also concerned with the cash flow impact of hedging and the profit or loss impact of the different accounting treatments. Ignore time value of money as it is deemed to be immaterial, and ignore tax effects, if any, that arise from the above transactions and events. Required: a) For each of the three accounting treatments, apply FRS 39 and account for all the relevant journal entries for ABC Ltd to record the transactions and events in relation to the forward exchange contract and the land purchase from 1 July 20x7 to 30 June 20x8 (indicating clearly whether the gain'loss is recognised as "profit or loss or as other comprehensive income"). (19 marks) (6) Based on the facts of this case, explain to the Chairman the cash flow impact of hedging and the profit or loss impact of applying hedging accounting. (11 marks)