June 2015 Q4b

Question:
Cloud PLC purchased steel from a foreign supplier as a hedged item in a cash flow hedge on 1 May 2014, making a cumulative gain on the hedging instrument of $3 million which was credited to OCI. At year end 30 April 2015, carrying amount of steel was $8 million and net realisable value was $6 million. Steel was sold on 3 June 2015 for $6.2 million.

My Answer:
30 April 2015: write down steel to net realisable value:
DR $2 million equity (cash flow hedge reserve); CR Inventory of steel

My questions:

Examiner’s answer says that Cloud should reclassify an equivalent amount of $2 million from equity to profit and loss. How is this done? Isn’t the inventory value affected?

When inventory is sold on 3 June 2015: answer is DR equity $1.2; CR P & L
The profit of $0.2 is taken from equity together with the remaining $1 million left previously to P & L.

But what about the inventory? How is the decrease in this account treated?

Thanks.