Hi, I have provided the question and answers. Can you please explain each of the steps in the solutions section, especially how they got the fx loss in each section. Thanks!

Question ) Part A

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.

Answer: