Question
Foreign Currency - 20 Marks On 1 April 2021, Winton Ltd, an Australian entity, places an order for GBP 200,000 of inventory with Austen plc,
Foreign Currency - 20 Marks
On 1 April 2021, Winton Ltd, an Australian entity, places an order for GBP 200,000 of inventory with Austen plc, a supplier based in the United Kingdom of Great Britain and Northern Ireland. On the same date, Winton Ltd enters into a forward exchange contract with the ABN Bank to buy GBP 200,000, to be settled on 31 July 2021. The goods are shipped FOB London on 1 May 2021. Winton Ltd pays for those goods on 31 July 2021. Winton Ltd has a reporting date of 30 June.
The following exchange rates are applicable.
Spot rate Forward rate for 31/7/21
1 April 2021 A$1 = 0.63 GBP A$1 = 0.61 GBP
1 May 2021 A$1 = 0.67 GBP A$1 = 0.64 GBP
30 June 2021 A$1 = 0.62 GBP A$1 = 0.60 GBP
31 July 2021 A$1 = 0.59 GBP A$1 = 0.59 GBP
This Question has Three Parts. Answer Part (a) (4 Marks); Part (b) (6 Marks); and Part (c) (10 Marks).
Part (a) Prepare a table showing the movement and the change in value of the hedged item. 4 Marks
Enter your answer into the table below:
Part (b) Prepare a table showing the fair value and the gain or loss on the forward contract (ie the hedging instrument). 6 Marks
Enter your answer into the table below:
Part (c) Prepare the journal entries for Winton Ltd to reflect the above transactions. 10 Marks
Enter your answer into the Journal template below:
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