Question
In: Accounting
On 1 June2020, Purchase Limited enters into a firm commitment Supply Limited to buy USD 100,000...
On 1 June2020, Purchase Limited enters into a firm commitment Supply Limited to buy USD 100,000 of inventory. On 1 July 2020, the Purchase Limited enters into a hedging arrangement which meets the hedge accounting criteria stipulated by the accounting standards (Australian Accounting Standards Board (AASB) 9). Purchase Limited has designated the firm commitment hedging arrangement as a fair value hedge. On 1 August 2020, Supply Limited transfers the inventory to Purchase Limited, and on that date, the Purchase Limited makes the payment. The spot and forward rates are as follows. Date Spot rate in AUD Forward rate in AUD 1 June 2020 0.19 0.2 30 June 2020 0.2 0.25 1 August 2020 0.3 0.3 Required: a) Explain at least two determinants of determining an effectiveness of a hedge instrument against a he
ue
2. What is your subject?
dge 5 Marks b) Provide journal entries to account for the hedged item (firm commitment to buy inventory) 8 Marks i. On 1 June 2020 ii. On 30 June 2020 iii. On 1 August 2020 c) Provide journal entries to account for the hedge instrument (forward contract) 7 Marks i. On 1 June 2020 ii. On 30 June 2020 iii. On 1 August 2020
Solutions
ekkarill92 answered 2 years agoRelated Solutions
On 1 June2020, Purchase Limited enters into a firm commitment Supply Limited to buy USD 100,000...
On 1 June2020, Purchase Limited enters into a firm commitment
Supply Limited to buy USD 100,000 of
inventory. On 1 July 2020, the Purchase Limited enters into a
hedging arrangement which meets the hedge
accounting criteria stipulated by the accounting standards
(Australian Accounting Standards Board (AASB) 9).
Purchase Limited has designated the firm commitment hedging
arrangement as a fair value hedge. On 1 August
2020, Supply Limited transfers the inventory to Purchase Limited,
and on that date, the Purchase Limited...
Hedge of Firm Commitment: Short in Commodity Futures On May 1, 2021, Keister, Inc., sells 100,000...
Hedge of Firm Commitment: Short in Commodity
Futures
On May 1, 2021, Keister, Inc., sells 100,000 units of commodity
futures at $5/unit for delivery in 120 days and makes an initial
margin deposit of $10,000. Spot and futures prices move in tandem.
Keister will buy the commodity from a supplier in 90 days and,
pursuant to a firm sale commitment, will sell it 30 days later at
the prevailing spot price. Keister designates the futures contracts
to protect the proceeds...
XYZ Medical Ltd a Melbourne based company enters into a non-cancellable purchase commitment of US$50,000 with...
XYZ Medical Ltd a Melbourne based company enters into a
non-cancellable purchase commitment of US$50,000 with an American
supplier on 1 April 2020 to buy the face masks in a bulk for
medical staff. These face masks are to be shipped on the 1st of May
2020. The amount owing on the purchase is payable on 31 July 2020.
XYZ Ltd observed that exchange rate is very volatile due to the
current trade war between America and China. XYZ decided...
XYZ has received a firm commitment from its underwriter to purchase 1.5 million shares of stock...
XYZ has received a firm commitment from its underwriter to
purchase 1.5 million shares of stock that will be marketed to the
general public at $60 per share. The underwriter's spread is $3.00
per share and the issuing firm will pay an additional $2million in
legal and other fees. The issue was fully sold on the first day and
the stock closed at $80.00 on that day. Calculate both the direct
expense of issuance and the indirect (i.e., underpricing) expense....
Quencher Limited is planning to produce mineral water. It is contemplating to purchase a plant with a capacity of 100,000 bottles a month.
Quencher Limited is planning to produce mineral water. It is contemplating to purchase a plant with a capacity of 100,000 bottles a month. For the first year of operation the company expects to sell between 60,000 to 80,000 bottles. The budgeted costs at each of the two levels are as follows:
GHS
Particular 60,000 bottles 80,000 bottles
Material 360,000 480,000
Labour 200,000 260,000
Factory overheads 120,000 150,000
Administration expenses 100,000 110,000
The production would be sold through retailers who will...
On December 1, 20x1, Golf Co. enters into a futures contract to sell 100,000 foreign currency...
On December 1, 20x1, Golf Co. enters into a futures contract to
sell 100,000 foreign currency units on January 31, 20x2 for 300 per
unit. The broker requires an initial margin deposit of 40,000. The
current rates are as follows:
Dec. 1, 20x1 Dec. 31, 20x1 Jan. 31, 20x2
300
298
297
Provide Journal entries.
1. Suppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities...
1. Suppose a bank enters a repurchase agreement in which it
agrees to buy Treasury securities from a correspondent bank at a
price of $34,950,000, with the promise to buy them back at a price
of $35,000,000.
a. Calculate the yield on the repo if it has a 5-day
maturity.
b. Calculate the yield on the repo if it has a 16-day
maturity. (For all requirements, use 360 days in a year. Do not
round intermediate calculations. Round your answers...
On 1 January 2018, Bae Limited issued a convertible bond with a par value of $100,000...
On 1 January 2018, Bae Limited issued a convertible bond with a
par value of $100,000 for $120,000.
The bonds are convertible into 12,000 ordinary shares of
Jan.
The bond has a 5-year life with a stated interest of 10% per
annum. Interest
payment is made each year on 31 December, starting from 31
December 2018.
The market interest rate on 1 January 2018 for a similar
non-convertible bond is
8% per annum.
On 1 January 2018, the liability component...
1. The face value for Karen’s Limited bonds is $100,000 and has a 2 percent annual...
1. The face value for Karen’s Limited bonds is $100,000 and has
a 2 percent annual coupon. The percent annual coupon bonds matures
in 2022, and it is now 2012. Interest on these bonds is paid
annually on December 31 of each year, and new annual coupon bonds
with similar risk andmaturity are currently yielding 12 percent.
How much should Karen sell her bonds today?
2. What is the semi-annual coupon bond’s nominal yield to
maturity (YTM), if the years...
On July 1, an American auto dealer enters into a contract to purchase 25 British sports...
On July 1, an American auto dealer enters into a contract to
purchase 25 British sports cars with payment to be made in pounds
on November 1. Each car costs 40,000 pounds. The dealer is
concerned that the pound will strengthen over the next few months.
The dealer plans to trade in December pound futures contracts. The
December pound futures price is $1.300 per pound. Each contract is
for delivery of 62,500 pounds.
The spot rate on November 1 is...
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