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ACCOUNTING AND FINANCE

ACCTG 311, FINANCIAL ACCOUNTING

Assignment 4: Questions for Module 5
Distribution Date: W/B 21 September 2015

DUE DATE: WEDNESDAY 21 OCTOBER 2PM: TOTAL=17 MARKS

Please take note of the following:
There is only one question in this assignment, which is adapted from the 2015FC final
exam.
Ensure that you use the attached WORKSHEETS 1 and 2 to form your answer to this
assignment and submit both worksheets. Note that some worksheets may provide more
space than necessary.
QUESTION:

The New Zealand dollar is the functional currency of a New Zealand exporter. The
exporter wants to limit the effect of currency fluctuations in the next year, by hedging
forecasted USD-denominated sales. It expects to sell US$100,000 of goods on 31
January 2015, and it expects to receive the payment on 30 April 2015. Therefore, on
31 January 2014 it enters into a fifteen month forward contract to sell US$100,000
and receive the agreed number of NZ dollars on 30 April 2015 (at a forward rate of
NZ$1 = US$0.76).
Relevant exchange rates (i.e., spot rates and forward rates for 30 April 2015 delivery
of cash) for transaction dates and balance dates (31 March) are provided in the table
below. The table shows the number of US$ one gets on delivery of NZ$1 (i.e., NZ$1
= US$).
Date

Spot Rate

Forward Rate

31-Jan-14

0.80

0.76

31-Mar-14
31-Jan-15
31-Mar-15
30-Apr-15

0.87
0.73
0.75
0.77

0.84
0.71
0.74
0.77

You can assume that the goods of US$100,000 were sold on 31 January 2015
according to the plan. Also assume that this is an effective cash flow hedge, under the
provisions of paragraph 89 of NZ IAS 39.
To assist you with your calculations some information is given in the table below. The
left hand column gives a date, the middle column gives the discounting period (in
months), and the right hand column gives a present value of $1, discounted at an
annual rate of 6%, for the period indicated. The computation in the right hand column
is: 1/(1 + 0.06/12)t, where t is time months.

Date
31-Jan-14
31-Mar-14
31-Jan-15
31-Mar-15
30-Apr-15

Time to run
(t)
15
13
3
1
0

Discount factor
(6% per annum )
0.9279
0.9372
0.9851
0.9950
1.0000

REQUIRED:
(a) Complete WORKSHEET 1 (attached), which will assist you with answering the
following questions. Also see note below.
(i)

Prepare the journal entries (if any) on 31 March 2014 (a balance date).
(1 mark)

(ii)

Prepare the journal entries (if any) on 31 January 2015 (the date of sale).
(3 marks)

(iii) Prepare the journal entries (if any) on 31 March 2015 (a balance date).
(2 marks)
(iv) Prepare the journal entries (if any) on 30 April 2015 (date of settlement of
the forward contract and receipt of payment from the debtor).
(3 marks)
NOTE:
Show all workings clearly. Make sure all your journal entries have a brief
narration.
(b)

Using WORKSHEET 2 (attached), disclose the forward and the sales,

including related gains, losses and the effect on retained earnings, by
completing the relevant parts of the balance sheet as at 31 March 2015, and
the relevant parts of the statement of comprehensive income for the years
ended 31 March 2015.
(8 marks)
(Total for question: 17 marks)

WORKSHEETS FOLLOW

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LAST NAME:

FIRST NAME:

STUDENT ID:
WORKSHEET 1 FORMS PART OF THE ANSWER FOR PART (a). ENSURE THAT THIS WORKSHEET IS
ATTACHED TO YOUR ANSWER BOOK AT THE COMPLETION OF THE EXAM.

Dat
e

Forwa
rd
Rate

Forward Contract Asset

and Liability
Value
Value
of
Net (A
of
Liabilit
L)
Asset
y

PV

Fair
Value

Change

Fac
tor

of
Forward

in Fair
Value

31Jan14
31Mar14
31Jan15
31Mar15
30Apr15

WORKSHEETS FOLLOW

WORKSHEET 2

LAST NAME:

FIRST NAME:

ACCTG 311

STUDENT ID:
WORKSHEET 2 FORMS THE ANSWER FOR PART (b). ENSURE THAT THIS WORKSHEET IS ATTACHED TO YOUR
ANSWER BOOK AT THE COMPLETION OF THE EXAM.