Question

above trarsdLIun.L REQUIRED Prepare the journal entries for Possum Ltd to account for the a UK supplier. The goods will be purchased FOB Liverpool. A decision is made to take out a foreign exch forward-rate contract for UK£1.5 million on 1 March 2018 with The Bank in which The Bank agrees to supply Ka Ltd with UKS1.5 million on 1 August 2018. The goods are shipped on 1 June 2018 and are paid f 2018. 15. On 1 March 2018 Kanga Ltd, an Australian entity, places an order for UK£ 1.5 million of inventory with Ferett n nga or on 1 August Additional information Spot rate £O.45 £0.43 £0.39 £0.41 Forward rate £0.42 £O.40 £O.36 £0.41 Date 1 March 2018 1 June 2018 30 June 2018 1 August 2018 REQUIRED Assuming that the hedging arrangement satisfies the requirements for hedge accounting as stipulated in AAS 9, and the management of Kanga Ltd adopts cash flow hedge accounting, provide the necessary journal ent for Kanga Ltd to account for both the purchase transaction with Ferrett plc and the forward-rate contract witn ie Bank. LO 28.8

Answer 1

Journal entries in the books of Kanga Ltd.

On forward contract date

Goods Receivable/Inventory a/c...........Debit.      £0.615Million

Ferrett plc payable Credit        £0.615Million

At maturity date

Ferrett plc Debit              £ 0.615Million      

Purchase a/c Debit          £0.615 Million

Goods Receivable a/c Credit      £ 0.615 Million

Cash/Bank A/c Credit                £ 0.615 Million