Question 5 Foreign Currency (18 marks) On 15 June 2018, Koala Ltd, an Australian entity, entered into a purchase commitment with WID Co., a US supplier of engines, with those engines to be shipped on 30 June 2018, at which time control of the assets will be transferred to Koala Ltd. The total contract price was US$4 000 000 and the full amount was due for payment on 30 August 2018 Because of concerns about movements in foreign exchange rates, on 15 June 2018, Koala Ltd entered into a forward rate contract on US dollars with a foreign exchange broker to purchase US$4 000 000 on 30 August 2018 at a forward rate of SA1.00-US$0.75. Assume that the hedge satisfied the hedge accounting requirements of AASB 9, it was 100% effective and that Koala Ltd had designated the hedging arrangement as a cash flow hedge. The financial year end of Koala Ltd is 30 June. The following exchange rate information is available: Spot rate Forward rate for delivery of US$4 000 000 on 30 August 2018 A$1.00 US$0.75 A$1.00 US$0.78 15 June 2018 AS1.00 US$0.73 A$1.00 US$0.76 30 June 2018 A$1.00 USS0.71 A$1.00 US$0.71 30 August 2018 REQUIRED: Show all calculations on measuring fair values (and changes in fair values) of the hedged item and the hedging instrument on relevant dates. Prepare general journal entries to record these transactions in Koala Ltd's books in accordance with the requirements of AASB 9. Question 5 Foreign Currency (18 marks) On 15 June 2018, Koala Ltd, an Australian entity, entered into a purchase commitment with WID Co., a US supplier of engines, with those engines to be shipped on 30 June 2018, at which time control of the assets will be transferred to Koala Ltd. The total contract price was US$4 000 000 and the full amount was due for payment on 30 August 2018 Because of concerns about movements in foreign exchange rates, on 15 June 2018, Koala Ltd entered into a forward rate contract on US dollars with a foreign exchange broker to purchase US$4 000 000 on 30 August 2018 at a forward rate of SA1.00-US$0.75. Assume that the hedge satisfied the hedge accounting requirements of AASB 9, it was 100% effective and that Koala Ltd had designated the hedging arrangement as a cash flow hedge. The financial year end of Koala Ltd is 30 June. The following exchange rate information is available: Spot rate Forward rate for delivery of US$4 000 000 on 30 August 2018 A$1.00 US$0.75 A$1.00 US$0.78 15 June 2018 AS1.00 US$0.73 A$1.00 US$0.76 30 June 2018 A$1.00 USS0.71 A$1.00 US$0.71 30 August 2018 REQUIRED: Show all calculations on measuring fair values (and changes in fair values) of the hedged item and the hedging instrument on relevant dates. Prepare general journal entries to record these transactions in Koala Ltd's books in accordance with the requirements of AASB 9
