Question
On 1 May 2022, Hightech Ltd enters into a non-cancellable sale contract with a US company to sell equipment. The equipment to be shipped on
On 1 May 2022, Hightech Ltd enters into a non-cancellable sale contract with a US company to sell equipment. The equipment to be shipped on 30 June 2022, at which time controls of the assets will be transferred to the U.S company. The total sale price is US$600000 and the full amount is due for payment on 31 August 2022.
On 1 May 2022, Hightech Ltd entered into a forward contract on US dollars with a bank so as to sell US$600000 on 31 August 2022 at a forward rate of A$1.00 = US$0.72.
Other information
Date
Spot rate
Forward rates
1 May 2022
A$1.00 = US$0.70
A$1.00 = US$0.72
30 June 2022
A$1.00 = US$0.73
A$1.00 = US$0.74
31 August 2022
A$1.00 = US$0.78
A$1.00 = US$0.78
Assuming that the hedging arrangement satisfies the requirements for hedge accounting as stipulated in AASB 9 'Financial Instruments', and the management of Hightech Ltd elects to adopt cash flow hedge accounting.
Required:
(a)Preparethetable below,showinggains/lossesonthehedginginstrument(the forward rate contract).
(b)provide the journal entries for Hightech Ltd to account for the hedging arrangement. [Narrations are not required. Rounded to the nearest dollar]
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International Accounting
Authors: Frederick D. Choi, Gary K. Meek
7th Edition
978-0136111474, 0136111475
