On December 1 2013 Xanadu Corporation entered into a forward
On December 1, 2013, Xanadu Corporation entered into a forward contract to buy €500,000 on March 1, 2014, for C$1.52. On March 1, 2013, Xanadu enters into a forward contract to sell 200,000 Chilean pesos (CLP) in 12 months at the forward rate of C$0.39.
Assume that Xanadu has a December 31 year end. Spot rates and the forward rates for euros and pesos relative to the Canadian rate on selected dates are:
(a) Prepare the journal entries to record the transactions in 2013 and 2014 assuming that:
1. Hedge accounting is not used.
2. Hedge accounting is used.
3. ASPE is followed.
(b) Calculate the gain or loss to be recorded in income under each of the scenarios above.
(c) Was hedge accounting useful for this company?
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