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On 1 March 2017 Cron Ltd entered a transaction with the American Eagles Inc (a United States firm) for the sale USD500,000 of scrummaging machines. The equipment is to be air freighted on 2 May 2017 and payment is due on 1 August 2017.

Cron Ltd is concerned about exchange rate fluctuations and on 1 March purchases an option to sell USD500,000 at an exchange rate 0.7500 for delivery on 1 August 2017. Cron Ltd pays $15,500 for the option at this time. On 2 May 2017 the option is worth $1,500 and on 30 June 2017 the value of the option is $20,500.

The exchange rates over this period are:

1 March 2017	AUD1.00 = USD0.7600
2 May 2017	AUD1.00 = USD0.7400
30 June 2017	AUD1.00 = USD0.7700
1 August 2017	AUD1.00 = USD0.8000

Required

1. Prepare journal entries for Cron Ltd that are required by AASB 121 Foreign Currencies and AASB 132 / 139 Financial Instruments to record the above transactions, including the adjustments at year end (30 June 2017). Cron Ltd does not designate the option as a hedge.

Solution to this question is provided below:

1 March 2017 Option Cash 15,500 15,500 2 May 2017 Accounts Receivable Revenue 675,675 675,675 30 June 2006 Ex Loss Accounts Receivable 26,325 26,325 5,000 Option Gain - FX 5,000 1 August 2002 24351 Ex Loss Accounts Receivable 24351 41,666 Cash Option - FX Profit and Loss 20,500 21,166 Cash Accounts Receivable 625,000 625,000 1 March 2017 Option Cash 15,500 15,500 2 May 2017 Accounts Receivable Revenue 675,675 675,675 30 June 2006 Ex Loss Accounts Receivable 26,325 26,325 5,000 Option Gain - FX 5,000 1 August 2002 24351 Ex Loss Accounts Receivable 24351 41,666 Cash Option - FX Profit and Loss 20,500 21,166 Cash Accounts Receivable 625,000 625,000