Reeze Ltd is a Singapore company with the Singapore Dollar (S$) as its functional currency and presentation currency and a 31 December financial year-end. The following transactions occurred during 20x8:

On 1 January 20x8, Reeze Ltd has successfully negotiated a highly probable sale of machinery to a Malaysian customer at Ringgit Malaysia RM100,000 on 30 June 20x8. To hedge this transaction, on 1 January 20x8, Reeze Ltd entered into a forward exchange contract to sell on 30 June 20x8 RM100,000 of Ringgit Malaysia currency.

Reeze Ltd has 100% interest in Tromp Inc., an American company that has the United States Dollar (US$) as its functional and presentation currency. Reeze Ltd had acquired Tromp Inc. on 1 January 20x7. Tromp Inc.’s net assets on 1 January 20x8 was US$500,000. On 1 January 20x8, Reeze Ltd entered into a forward exchange contract to sell US$500,000 on 31 December 20x8.

On 1 April 20x8, Reeze Ltd borrowed S$100,000 from a Singapore bank. The loan requires interest of 4% per annum to be paid on 31 March each year, and the principal amount to be repaid at the end of 3 years. To hedge this transaction, on 1 April 20x8, Reeze Ltd entered into an interest-rate swap under which it receives a fixed interest rate of 4% per annum and pays a floating interest rate of SIBOR on 31 March each year.

Required:

Identify the hedged item, hedging instrument, hedged risk, and type of hedge accounting rules to use for each of the three hedging activities of Reeze Ltd. Assume Reeze Ltd decides to adopt the Singapore Financial Reporting Standards (International) (SFRS(I)) 1-39 Financial Instruments: Recognition and Measurement to account for its three hedging activities above, and assume all the conditions of SFRS(I) 1-39 are met.

Answer rating: 100% (QA)

Particulars Transaction 1 Transaction 2 Transaction 3 Hedge Item Trade receivable of RM100000 Investment USD 500000 Interest Cost on Loan Hedging Inst... View the full answer