On 1 March 2019 Joy Limited, an Australian entity, places an order for UK 1.5 million of inventory with Ferrett plc, a UK supplier. The goods will be purchased FOB Liverpool. A decision is made to take out a foreign exchange forward-rate contract for UK 1.5 million on 1 March 2019 with The Bank in which The Bank agree to supply Joy Ltd with UK 1.5 million on 1 August 2019. The goods are shipped on 1 June 2019 and are paid for on 1 August 2019.

Additional information

The relevant exchange rates are as follows:

Date

Spot rate

Forward rate

1 March 2019

$A1.00= UK0.45

$A1.00= UK 0.42

1 June 2019

$A1.00= UK 0.43

$A1.00= UK 0.40

30 June 2019

$A1.00= UK 0.39

$A1.00= UK 0.36

1 August 2019

$A1.00= UK 0.41

$A1.00= UK 0.41

REQUIRED

Assuming that the hedging arrangement satisfies the requirements for hedge accounting as stipulated in AASB 9 Financial Instrument, and the management of Joy Limited adopts cash- flow hedge accounting. Provide necessary journal entries for Joy Limited to account for both the purchase transaction with Ferrett plc and the forward-rate contract with The Bank.