I have a small query regarding the Hedge Instruments.
In this particular adjustment, why are we taking the gain of 1100 to the Other Comp of Equity? Why not adding it to the Retained Earnings?
Note 7 – Forward currency contract (Dec 2013 Past paper)
During July and August 2013 Alpha conducted a large marketing effort in Country X. The currency in Country X is the Euro. Alpha made no sales to customers in Country X in the year ended 30 September 2013 but is very confident of making substantial sales to such customers in the year ended 30 September 2014. On 5 September 2013, Alpha entered into a contract to sell €20 million for $28 million on 31 October 2013. Currency fluctuations in September 2013 were such that on 30 September 2013 the fair value of this currency contract was $1·1 million (a financial asset). The draft financial statements of Alpha do not include any amounts in respect of this currency contract since it has a zero cost. Alpha wishes to use hedge accounting whenever permitted by International Financial Reporting Standards. Alpha expects sales to customers in Country X to be at least €22 million in October 2013.
Thanks in advance,
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