PROBLEM 5: FOREIGN CURRENCY (20 MARKS TOTAL)

Use the information here for answering questions 1 to 3 on this page.

On 1 April 2020, Winton Ltd, an Australian entity, places an order for GBP 200,000 of inventory with Austen plc, a UK supplier. On the same date, Winton Ltd enters into a forward exchange contract with the bank to buy GBP 200,000, to be settled on 31 July 2020. The goods are shipped FOB London on 1 May 2020 and are paid for on 31 July 2020. Winton Ltd has a reporting date of 30 June.

The following exchange rates are applicable.

Spot rate Forward rate for 31/7/20 1 April 2020 A$1 = 0.63 GBP A$1 = 0.61 GBP 1 May 2020 A$1 = 0.67 GBP A$1 = 0.64 GBP 30 June 2020 A$1 = 0.62 GBP A$1 = 0.60 GBP 31 July 2020 A$1 = 0.59 GBP A$1 = 0.59 GBP

Q1: Complete the table showing the movement and the change in value of the hedged item (4 marks)

Type text or numbers as appropriate in the following table. Enter numbers as numerals only. Use a negative symbol '-' in front of your number where appropriate to indicate a loss. Enter a 0 if you do not need to enter data in that field.

Q2: Complete the table showing the movement and the change in value of the hedging instrument (6 marks)

Type text or numbers as appropriate in the following table. Enter numbers as numerals only. Use a negative symbol '-' in front of your number where appropriate to indicate a loss or a liability. Enter a 0 if you do not need to enter data in that field.

Q3: Provide the journal entries for Winton Ltd to reflect the above transactions (10 marks)