Beauty Care Limited (BCL)manufactures and Distributes Leather Furniture to Various

question 22

Essay

Beauty Care Limited (BCL)manufactures and distributes leather furniture to various companies in Europe.On April 2,20X6,BCL entered into a sales contract with a company in Germany to sell 1,000 sofas.The contract price is €2,000 per sofa.Five hundred sofas are to be delivered in May 15,20X6 and the remaining half is to be delivered on December 20,20X6.Payment is due in two instalments with half due on August 31,20X6 and the remaining half due January 30,20X7.However,the customer has the right to cancel the contract with 30 days' notice.
BCL entered into a forward contract to hedge against the Euro exchange rate for €1 million each coming due on January 31,20X7.BCL has an October 31 year end.
Delivery of the furniture occurred on the dates specified and the company collected the receivables due and settled the forward contract January 30,20X7.
The exchange rates were as followed:

Required:
Assume that the forward contract is designated as a cash flow hedge since the sale is highly probable.Prepare the journal entries to record the sales and the hedge.Use the net method to record the journal entries.BCL reports under IFRS.

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Definitions:

Income Tax Rate

The proportion of a person's or organization's income that is owed to the government in taxes.

Capital Budgeting

The process of planning and evaluating investments in long-term assets to generate returns over time.

Renovation Expense

Costs incurred in updating or restoring the physical condition of a business asset to increase its value or extend its life.

Straight-Line Depreciation

A method of calculating the depreciation of an asset which assumes the asset will lose an equal amount of value each year over its useful life.