Assume the same information as in P10.10, except that the hedged item is a firm commitment, and the forward contract was designated as a fair value hedge of the foreign exchange risk of a firm commitment.

Required

1. Prepare the journal entries for the hedging instrument and the hedged item for the duration of the hedge.
Assume that the time value (interest element) is excluded from the hedge relationship.

2. Is there any difference between designating the hedge as a fair value hedge and as a cash flow hedge as in P10.10 (2)?

Data from P10.10(2)

2. Show the journal entries if the hedging relationship is designated as being for changes in the spot element of the forward exchange contract and the interest element is excluded from the designated hedging relationship (IFRS 9: 6.5.16), and Alfalfa’s accounting policy is to adjust the cost of non-financial assets that result from hedged forecast transaction.