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Answered Same Day Mar 29, 2021

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Riddhi answered on Mar 29 2021

152 Votes

Answer to Question 4
    a)    Journal entries in the books of Big Ltd
    31-Dec-14    Exchange loss    5600
        Investment in forward contract        5600
        (4,00,000 x (1.79 - 1.804))
    15-Feb-15    Accounts receivable     $ 729,600
        To Equipment        $ 729,600
        ( Being equipment sold by Big Ltd for 4,00,000 pound converted to $ at the spot rate of $1.824)
    31-Mar-15    Accounts receivable    5200
        To Exchange Gain        5200
        (4,00,000 x (1.824 - 1.837))
    31-Mar-15    Exchange loss    12000
        Investment in forward contract        12000
        (4,00,000 x (1.804 - 1.834))
    15-Apr-15    Accounts receivable    25200
        To Exchange Gain        25200
        (4,00,000 x (1.837 - 1.9))
    15-Apr-15    Exchange loss    26399.9999999999
        Investment in forward contract        26399.9999999999
        (4,00,000 x (1.834 - 1.9))
    15-Apr-15    Foreign Cu
ency    760000
        To Accounts receivable        $ 760,000
        (4,00,000x 1.9)
    15-Apr-15    Cash(4,00,000 x 1.79)    716000
        Investment in Forward contract    43999.9999999999
        To Foreign Cu
ency (4,00,000 x 1.9)        760000
    b)    Calculate the discount or premium
            Spot    Forward    Discount%
        17-Nov-14    1.8    1.79    0.56
        31-Dec-14    1.815    1.804    0.61
        15-Feb-15    1.824    1.819    0.27
        31-Mar-15    1.837    1.834    0.16
        Net gain or loss allocated between cost of hedging and sale is described in journal entries above
        Gain on sale of equipment    30399.9999999999
        Loss on Forward Contract    43999.9999999999
    c)    Balances in balance sheet on 31-dec-2014
        Investment in forward contract    Cr Balance     Asset    5600
        Exchange loss    Dr Balance    Asset    5600
    d)    Balances in balance sheet on 31-Mar-14
        Accounts receivable asset    Dr Balance    Assets    $ ...

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