AASB9 Hedge Accounting: Journal Entries for Foreign Currency Exposure

1. Journal entries for Fortescue Ltd: April 1, 20X6: No journal entry required as no transaction has taken place yet.

July 31, 20X6: Equipment Dr. 300,000,000 Accounts payable Cr. 300,000,000 To record the purchase of equipment from Drills-R-US Ltd.

September 30, 20X6: Accounts payable Dr. 58,500,000 Gain on forward contract Dr. 1,500,000 Cash Cr. 60,000,000 To record the settlement of the purchase of equipment and the gain on the forward contract.

Gain on forward contract: Fair value of forward contract on April 1, 20X6: 0 Fair value of forward contract on June 30, 20X6: (200,000) Fair value of forward contract on July 31, 20X6: (900,000) Fair value of forward contract on September 30, 20X6: (1,500,000) Total loss on forward contract: (2,600,000) Gain on forward contract: 2,600,000

2. Journal entries for Fortescue Ltd: June 30, 20X7: Depreciation expense Dr. 30,000,000 (($300,000,000/10 years) x 9/12) Accumulated depreciation Cr. 30,000,000 To record the depreciation expense for the equipment for the year ended June 30, 20X7.

Note: Fortescue Ltd assessed the equipment as having a useful life of 10 years with benefits expected to be received evenly over that period and no residual value. Therefore, the depreciation expense for the first year would be (($300,000,000/10 years) x 12/12) = $30,000,000. Since the equipment was purchased on July 31, 20X6, the depreciation expense for the year ended June 30, 20X7 would be (($300,000,000/10 years) x 9/12) = $22,500,000.