Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Background information Puru Limited (Puru) is a manufacturer of pharmaceutical products. Puru has a functional and presentation currency of Australian dollars (AUD/A$$). Its financial year
Background information Puru Limited (Puru) is a manufacturer of pharmaceutical products. Puru has a functional and presentation currency of Australian dollars (AUD/A\$\$). Its financial year end is 31 December. Item 1 On 1 November 2022, Puru received an order for 850,000 worth of vaccines from a customer in Poland. The terms of the sale are payment upon delivery of the vaccines to Poland. Puru expects delivery to occur in four months' time and is therefore expecting payment of 850,000 on 1 March 2023. As Puru is concerned about the variability in cash flows, it decides to enter into a foreign exchange (FX) forward contract on 1 November 2022 with Argent Bank. The contract entitles Puru to receive A$1,383,238 (at a forward exchange rate of AUD1 = 0.6145) and pay 850,000. The contract matures on 1 March 2023 and will be settled net in cash. Puru designates a cash flow hedging relationship between the FX forward contract and the expected cash from the customer. The fair values of the firm commitment and the FX forward contract at the relevant dates are as follows: 1. The fair value of the FX forward has been impacted by some credit risk associated with the counterparty. The effect of the credit risk does not dominate the hedging relationship. Note that this fair value cannot be calculated from the facts presented in the background information. Additional information - Any journal entries for the year ended 31 December 2022 have been recorded. - The vaccines were delivered to the customer in Poland on 1 March 2023. The customer transferred the full cash payment the same day. - Assume that the IFRS 9 Financial Instruments hedge effectiveness requirements were satisfied throughout the life of the hedging relationship. Task - Prepare the journal entries for the year ended 31 December 2023
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started