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On December 3, 2019, Firewolf company made an agreement with the local bank to enter into
numerous forward exchange contract to purchase 100,000 Indian Rupees (INR) in 120 days .
Given below are the important exchange rate for every 1 unit of INR:
Forward Rate
Spot Rate (For April 11,
2021)
November 30,
P 0.87 P 0.89
2019
December 3,
0.88 0.90
2019
December 31,
0.92 0.93
2019
The company also provided the following information:
The first forward contract that Firewolf Company entered into was to hedge a purchase of
inventory in November 2019, payable in April 2020.
The second forward contract has the purpose of hedging a commitment to purchase
machineries being manufactured to Firewall's unique standards. The expected delivery
date is on April 2020 at which the settlement is due to the manufacturer. The hedge
qualifies as a fair value hedge.
The third and last forward contract was for speculation of Firewolf company on an
upcoming purchase transactions.
Question_1] What amount of Forex transaction gain from the forward contract in hedging the
purchase of transaction should Firewolf include in the 2019 net income?
[Question_2] At the balance sheet date, what amount of Forex transaction loss should Firewolf
include in income from the revaluation of the Accounts Payable of 100,000 Indian Rupees
incurred as a result of the purchase of inventory at November 30, 2019 payable in April 2020?
[Question_3] What amount of Forex transaction gain from the forward contract in hedging a
commitment to purchase a machinery should Firewolf include in the 2019 net income?
[Question_4] What amount of Forex transaction gain from the forward contract in hedging a
speculation should Firewolf include in the 2019 net income?
[Question_5] How much is the Forex transaction loss on the hedged item of the speculation that
Firewolf should have reported in 2019 net income?