Cash flow hedge accounting(CFHR)

Exp Limited (Exp) is the parent entity of the Exp group (the Group). All subsidiaries are wholly owned. The Group uses Australian dollar as its presentation currency.

4. On 1 June 20×9 Exp ordered an item of equipment from a supplier based in the United States. The contract price was US$ 5 million. The equipment was due for delivery on 30 September 20Y0 and settlement was required on 30 November 20Y0. To hedge this transaction, Exp entered into a forward contract on 1 June 20×9 to purchase US$5 million on 30 November 20Y0 for A$6.875 million. There was no initial cost to enter into the forward contract.

The terms of the hedging instrument and hedged item matched each other and Exp completed the appropriate hedge documentation for this relationship. Exp designated the forward contract as the hedging instrument in a cash flow hedging relationship.

Relevant fair values are as follows:

1 June 20×930 June 20×930 June 20Y0
Fair value of forward contract assetNil                          320,800             1,008,000
Cumulative change in present value of future cash outflow for equipment purchaseNil– 322,846-1,000,506

This was the first hedge that Exp had entered into. The hedge was assessed to be effective.

Required : Calculate the CFHR balance at 30 June 20×9 and 30 June 20Y0

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