MAA725 Advanced Accounting Principles And Practice - Assessment 2

Assessment 2

Task Two
On 1 November 2019 Burwood Limited an Australian company, entered a contract for US$3 500 000 worth of inventory with Harlom Incorporated, a US supplier. The goods will be purchased FOB Philadelphia. The goods are shipped on 1 April 2020 and are paid for on 30 June 2020. Burwood Limited also entered into a forward exchange contract for US$3 500 000 on 1 November 2019 with NY Bank in which NY Bank agrees to supply Burwood Limited with US$3 500 000 on 30 June 2020. Burwood Limited has a financial year ending 31 December.

Assume that the hedging arrangement satisfies the requirements for hedge accounting as stipulated in AASB 9 ‘Financial Instruments, and the management of Burwood Limited adopts Cash flow hedge accounting.

Prepare a table showing Gains/losses on the hedging instrument (the forward rate contract) and also provide necessary journal entries to record the above transactions from 1 November 2019 to 30 June 2020.

(10 marks)

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