Rainbow Ltd is an Australian company operating in the consumables industry sector. It has a highly probable forecast purchase of inventory denominated in Foreign Currency (FC) dollars at FC$650,000 that it wants to hedge using a two-month forward exchange contract. The forward exchange contract is with Foreign Bank and it requires Rainbow Ltd to purchase FC$650,000 from Foreign Bank in two months' time at the forward exchange rate of A$1=FC$1.40. The forward exchange contract is entered into on 1 July 2021, and the forecast purchase of inventory is recognised on 1 August 2021. The inventory purchase is due to be settled on 1 September 2021. The following exchange rates are available. 2021 Spot rate Forward rate 1 July A$1=FC$1.30 A$1=FC$1.40 1 August A$1=FC$1.15 A$1=FC$1.20 1 September A$1=FC1.10 A$1=FC1.10 Rainbow Ltd has designated the hedging arrangement as a cash flow hedge, which qualifies for hedge accounting in accordance with AASB 9 'Financial Instruments'. It is 100% effective. The end of the reporting period for Rainbow Ltd is 30 September, and the company complies with the requirements of AASB 9 'Financial Instruments'. REQUIRED: Prepare the general journal entries to record these transactions in Rainbow Ltd's books. Round answers to the nearest Australian dollar. Insert your answer in the spaces provided. Complete all provided templates and show ALL working and any necessary explanations to support your answer. 4 Working: 1 July 1 August 1 September Accounts 4 ] payable at prevailing exchange rate- Change in fair value 1July 1 August 1 September Forward exchange 67 rate contract at prevailing exchange rate- Fair value of forward contract Change in fair value 1 7 Journal Entries: 1 July 2021 1 August 2021 4 1 September 20214 Rainbow Ltd is an Australian company operating in the consumables industry sector. It has a highly probable forecast purchase of inventory denominated in Foreign Currency (FC) dollars at FC$650,000 that it wants to hedge using a two-month forward exchange contract. The forward exchange contract is with Foreign Bank and it requires Rainbow Ltd to purchase FC$650,000 from Foreign Bank in two months' time at the forward exchange rate of A$1=FC$1.40. The forward exchange contract is entered into on 1 July 2021, and the forecast purchase of inventory is recognised on 1 August 2021. The inventory purchase is due to be settled on 1 September 2021. The following exchange rates are available. 2021 Spot rate Forward rate 1 July A$1=FC$1.30 A$1=FC$1.40 1 August A$1=FC$1.15 A$1=FC$1.20 1 September A$1=FC1.10 A$1=FC1.10 Rainbow Ltd has designated the hedging arrangement as a cash flow hedge, which qualifies for hedge accounting in accordance with AASB 9 'Financial Instruments'. It is 100% effective. The end of the reporting period for Rainbow Ltd is 30 September, and the company complies with the requirements of AASB 9 'Financial Instruments'. REQUIRED: Prepare the general journal entries to record these transactions in Rainbow Ltd's books. Round answers to the nearest Australian dollar. Insert your answer in the spaces provided. Complete all provided templates and show ALL working and any necessary explanations to support your answer. 4 Working: 1 July 1 August 1 September Accounts 4 ] payable at prevailing exchange rate- Change in fair value 1July 1 August 1 September Forward exchange 67 rate contract at prevailing exchange rate- Fair value of forward contract Change in fair value 1 7 Journal Entries: 1 July 2021 1 August 2021 4 1 September 20214
