On 1 March 2021 Kellogs Ltd, an Australian entity places an order for UK 1.5 million of inventory with Forrest plc, a UK supplier. The goods will be purchased FOB Liverpool. The goods are shipped on 1 June 2021, at which point they are considered to be in the control of Kellogs Ltd and are paid for on 1 August 2021. The organisation has a 30 June year end. Additional information

Date Spot Rate

1 March 2021 A$1.00 = 0.45

1 June 2021 A$1.00 =0.43

30 June 2021 A$1.00 = 0.39

1 August 2021 A$1.00 = 0.41

Required

a) Provide the necessary journal entries for Kellogs Ltd to account for the purchase transaction with Forrest plc (ignore narrations).

b) Would you recommend that the organisation consider entering a hedging arrangement with respect to this transaction (discuss the net gain/loss and the type of hedging arrangement you would recommend if you support hedging in this case)?

WORKINGS:

General Journal

Date Details DR CR