East Cuisine Bhd (ECB) operates a chain of fine seafood restaurants. The company makes very

detailed long-term planning. On 1 April 2021 CB determined that it would need to purchase 50,000

kilograms of Green lobster on 30 June 2022. Because of the fluctuations in the price of Green

lobster, on 1 April 2021 CB negotiated a special forward contract to purchase 50,000 kilograms

of Green lobster on 30 June 2022. The price of Green lobster was RM110 per kilogram on 1 April

2021.

On 30 June 2022, ECB purchased 50,000 kilograms Green lobster at the spot price and settled the

forward contract. The prices of Green lobster during the hedging period were as follows:

The appropriate discount rate throughout the hedging period is 9% and dividend yield is 5%. ECB

prepares financial statements on 30 June and 31 December. The company is able to demonstrate

that all the requirements for hedge accounting as per MFRS 9 Financial Instruments are met and

therefore it classifies the hedging of Green lobster price risk as cash flow hedges.

REQUIRED:

(a) Prepare the journal entries to record the transactions over the hedging period from 2021 to

2022. Show all workings. If no entry is needed, write "no journal entry". Assume that the

price of the forward contract is based on simple compounding. Round your answer to two

decimal points.

(14 Marks)

(b) Prepare a partial Statement of Profit and Loss and Other Comprehensive Income and

Statement of Financial Position for CB for the period ended 31 December 2021 to reflect

transactions related to cash flow hedges.

(2 Marks)

(c) Explain whether ECB has effectively hedged the cash flow for the purchase of Green lobster.

(2 Marks)

(d) Explain the impact to financial statement of ECB for the period ended 31 December 2021 if

ECB does not apply a hedge accounting.

Date 1 April 2021 30 June 2021 31 December 2021 30 June 2022 Spot price per kg RM110 RM115 RM105 RM112 Date 1 April 2021 30 June 2021 31 December 2021 30 June 2022 Spot price per kg RM110 RM115 RM105 RM112