On 15 March 2018, Aussie Cosmetics Ltd placed an order for inventory with Hua Wang Ltd,...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
On 15 March 2018, Aussie Cosmetics Ltd placed an order for inventory with Hua Wang Ltd, a supplier in China. The goods are delivered on 1 April 2018 with the payment due on 31 July 2018. The inventory's price is ¥500,000. Aussie Cosmetics Ltd is concerned that the exchange rate will fall resulting in a larger payment on the payment day (31 July 2018). To hedge against the risk, the company entered into a forward rate agreement with CBA Bank on 16 March 2018. The terms of the agreement are that Aussie Cosmetics Ltd will receive ¥500,000 on 31 July 2018 at the forward rate of A$1 = ¥4.85. Aussie Cosmetics Ltd elected to classify this transaction as a cash flow hedge and to adjust the cost of the inventory as a result of the hedging transaction. The exchange rates on the relevant days are show in the table below: Date 15 March 2018 16 March 2018 1 April 2018 30 June 2018 31 July 2018 Spot Rate A$1 =¥ 4.80 A$1 = 4.83 A$1 =¥ 5.00 A$1 =¥ 4.60 A$1 =¥ 4.50 Forward Rate Agreement Rate AS1 =¥ 4.83 ASI =¥ 4.85 A$1 =¥ 5.05 A$1 =¥ 4.65 ASI=¥ 4.50 On 1 August 2018, the purchased inventory was sold for $500,000. Required Assuming that the hedge is effective, prepare the necessary journal entries for Aussie Cosmetics Ltd to recognise the transaction above. Aussie Cosmetics Ltd's financial year ends on 30 June. Ignore GST. On 15 March 2018, Aussie Cosmetics Ltd placed an order for inventory with Hua Wang Ltd, a supplier in China. The goods are delivered on 1 April 2018 with the payment due on 31 July 2018. The inventory's price is ¥500,000. Aussie Cosmetics Ltd is concerned that the exchange rate will fall resulting in a larger payment on the payment day (31 July 2018). To hedge against the risk, the company entered into a forward rate agreement with CBA Bank on 16 March 2018. The terms of the agreement are that Aussie Cosmetics Ltd will receive ¥500,000 on 31 July 2018 at the forward rate of A$1 = ¥4.85. Aussie Cosmetics Ltd elected to classify this transaction as a cash flow hedge and to adjust the cost of the inventory as a result of the hedging transaction. The exchange rates on the relevant days are show in the table below: Date 15 March 2018 16 March 2018 1 April 2018 30 June 2018 31 July 2018 Spot Rate A$1 =¥ 4.80 A$1 = 4.83 A$1 =¥ 5.00 A$1 =¥ 4.60 A$1 =¥ 4.50 Forward Rate Agreement Rate AS1 =¥ 4.83 ASI =¥ 4.85 A$1 =¥ 5.05 A$1 =¥ 4.65 ASI=¥ 4.50 On 1 August 2018, the purchased inventory was sold for $500,000. Required Assuming that the hedge is effective, prepare the necessary journal entries for Aussie Cosmetics Ltd to recognise the transaction above. Aussie Cosmetics Ltd's financial year ends on 30 June. Ignore GST.
Expert Answer:
Answer rating: 100% (QA)
15 March 2018 Dr Inventory 500000 Cr Accounts Payable 500000 16 March 201... View the full answer
Related Book For
Auditing The Art And Science Of Assurance Engagements
ISBN: 9780136692089
15th Canadian Edition
Authors: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Chris E. Hogan, Joanne C. Jones
Posted Date:
Students also viewed these accounting questions
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
We will be working with a company called Global Bike Inc., (GBI). Information regarding GBI follows. Company History Global Bike Inc. has a pragmatic design philosophy that comes from its deep roots...
-
Stark, Inc., placed an order for inventory costing 500,000 FC with a foreign vendor on April 15 when the spot rate was 1 FC = $0.683. Stark received the goods on May 1 when the spot rate was 1 FC =...
-
1 YOUR NAME: 2 Asset # 3 Asset name: 4 Date acquired: 5 Cost: 6 Depreciation method: 7 Salvage (residual) value: 8 Estimated useful life (years): 9 222 Computer 1/1/2018 $50,000 Straight Line (SL)...
-
Tumblin Corporation, which has three divisions, is preparing its sales budget. Each division expects a different growth rate because economic conditions vary in different regions of the country. The...
-
On January 1, Mason Co. entered into a three-year lease on a building. The current value of the three lease payments is$60,000. Required Prepare entries for Mason to record (a) The lease asset and...
-
A vibrometer has an undamped natural frequency of \(10 \mathrm{~Hz}\) and a damped natural frequency of \(8 \mathrm{~Hz}\). Find the lowest frequency in the range to infinity at which the amplitude...
-
The balance sheets of Petrello Company and Sanchez Company as of January 1, 2011, are presented below. On that date, after an extended period of negotiation, the two companies agreed to merge. To...
-
Learning Objective 3 Question Content AreaSales, Production, Direct Materials Purchases, and Direct Labor CostThe budget director of Peaky Blinders Furniture Company requests estimates of sales,...
-
Design the 4-to-1 MUX two ways Write a Verilog module called mux4to1 to implement 4-to-1 multiplexer using functional descriptions and if-else blocks. Write another Verilog module called...
-
Over the past few years, there has been a significant discussion on the U . S decoupling from China. What does this mean and what are the reasons and also the pros and cons for this movement?
-
Find the Laplace transform of each periodic function whose definition in one period is given. h ( t ) = { 1 if 0 < t < 1 2 t if 1 < t < 2 h ( t ) = { 1 if 0 < t < 1 2 t if 1 < t < 2
-
Can equipotential lines ever cross?
-
A proton, a deuteron (a hydrogen nucleus containing one proton and one neutron), and an alpha particle (a helium nucleus consisting of two protons and two neutrons) initially at rest are all...
-
You release three balls simultaneously from the same height above the floor. The balls all carry the same quantity of surplus positive charge, but they have different masses: \(1 \mathrm{~kg}, 2...
-
What orientation of an electric dipole in a uniform electric field has the greatest electric potential energy? What orientation has the least? (Let the system comprise both the electric dipole and...
-
Sue owned the local beauty show for many years. She was very proud of CLIPS, LLC, which she owned with her husband, John, who kept the books for the company. A new customer, Candy, arrived at her...
-
Why is disclosure of depreciation or amortization methods and rates so important?
-
In auditing accounts payable, an auditors procedures will most likely focus primarily on managements assertion of (1) Existence. (2) Realizable value. (3) Completeness. (4) Valuation and allocation.
-
Diane Harris, a PA, is the auditor of Fine Deal Furniture, Inc. In the course of her audit for the year ended December 31, 2020, she discovered that Fine Deal had serious going-concern problems....
-
Access CPA Canadas CAS 450, Evaluation of misstatements identified during the audit, to answer the following questions: a. What are the three types of misstatements that can be identified by an...
-
Is leadership synonymous with management, or is leading just one of the many things that a manager does? In what ways are they the same or different?
-
Discuss the results of the Ohio State studies in terms of their significant impact on leadership research.
-
Explain Blake and Moutons Leadership Grid in relationship to previous leadership research.
Study smarter with the SolutionInn App