On 1 October 20x2, Lion Ltd (a Singapore-incorporated company with a 31 December year-end and whose functional/presentation currency is S$) purchases RM100,000 of Tiger Bhd shares listed in Bursa Malaysia. On the same date, Lion Ltd borrows a 3-month RM500,000 loan from Bank Malaysia. On 31 December 20x2, the Tiger Bhds shares are quoted at RM110,000. The exchange rates are RM1.00 = S$0.40 as at 1 October 20x2, and RM1.00 = S$0.33 as at 31 December 20x2. Assume that Lion Ltd made an irrevocable election to classify the Tiger Bhd shares as fair value through other comprehensive income (FVOCI) under FRS 109, and chooses to apply the hedge accounting requirements of FRS 39 instead of FRS 109.

Required:

(a) Does FRS 39 allow Lion Ltd to apply hedge accounting for the 3 months beginning 1 October 20x2 (assuming all other conditions for hedge accounting are met)?

(b) Assuming the answer to (a) above is Yes, and Lion Ltd wishes to apply hedge accounting, prepare the journal entries necessary to record the hedge relationship (ignore the interest on the bank loan) from 1 October 20x2 to 31 December 20x2. Record the various exposures separately and indicate clearly whether they are recognized as profit or loss or as other comprehensive income.