First Transaction: (CAN$$) 1. On Sept 01, 20x7, Push Corp orders inventory items
ID: 2526029 • Letter: F
Question
First Transaction: (CAN$$)
1. On Sept 01, 20x7, Push Corp orders inventory items A from Canadian Corporation.
2. Within 60 days, the delivery of the Canadian inventory parts will take place, Nov 1, 20x7.
3. The contract price is Canadian ($) 10,000 to be paid in 180 days, 6 months. May 01, 20xx
4. On Sept 01, 20x7, Push Corporation hedges its foreign currency payable commitment with a forward exchange contract to receive Canadian $ for 10,000 in 240 days (60+180).
Section Transaction: (YEN)
1. On Nov 01, 20x7, Push Corporation orders inventory items B from Japan Corporation.
2. Within 30 days, the delivery of the Japan inventory parts will take place, Dec 01, 20x7.
3. The contract price is Japan Yen (Y) 10,000 to be paid with 90 days, 3 months after delivery. March 01, 20xx
4. On Nov 01, 20x7 Push Corporation hedges its foreign currency payable commitment with a forward exchange contract to receive Japan (Y) 10,000 in 120 days (30 + 90).
Explanation / Answer
A Forward contract is an agreement between two parties wherein buyer has an obligation to purachse an undelysing asset & seller as an obligation to sell an underlying asset at a predefined future price.
Journal entries for scenario 1st is as below:
Accounting entries in Scenario 2 (YEN) are as follows :
Date Particulars Debit Credit 09-01-17 FCR from Exchange broker 11000 To Dollar Exchange payable 11000 (Being Contract value booked at Forward Rate as on 1st Sep i.e. 10000*1.1) 11-01-17 FCR from Exchange broker 1500 To Foreign currency transaction gain 1500 (Being Gain booked as difference of Spot Rate i.e (1.15-1)*10000) 11-01-17 Foreign currency transaction loss 1500 to Firm Commitment 1500 (Being Gain booked as difference of Spot Rate i.e (1.15-1)*10000) 11-01-17 Inventory 10000 Firm Commitment 1500 to Account payable 11500 12-31-2017 FCR 500 To Foreign Curreny Gain 500 (Recording the FCR at fair value i.e. (1.2-1.15)*10000) 12-31-2017 Foreign currency Loss 500 To Accounts payable 500 (Recording the FCR at fair value i.e. (1.2-1.15)*10000) 05-01-18 Foreign currency loss 1500 To FCR 1500 (Recording the FCR at fair value i.e. (1.2-1.05)*10000) Acc Payable 1500 To Foreign currency gain 1500 (Recording the FCR at fair value i.e. (1.2-1.05)*10000) 05-01-18 Dollar payable to broker 11000 To Cash 10000 (Being entry passed for amount paid to bank for the settlement of forward exchange contract i.e. (10000*1.1)) Foreign Currency Units 10500 To Foreign currency Payable 10500 (Entry passed for valuing amount of foreign currency at the spot rate i.e. 1.05*10000) Acc Payable 10500 To Foreign Currency Units 10500Related Questions
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