Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. honey ltd, a new zealand company, has sold us$150,

Honey Ltd, a New Zealand company, has sold US$150,000 of products to the US, to receive...

70.2K

Verified Solution

Question

Accounting

Honey Ltd, a New Zealand company, has sold US$150,000 ofproducts to the US, to receive cash exactly one month later. At thetime of sale, the spot rate of exchange is US$0.55, that is, NZ$1buys US$0.55. Honey Ltd wishes to hedge the currency riskassociated with this transaction, so on the day of the sale, thecompany buys a put option – that is, it buys the right to sellUS$150,000 at an exercise price of US$0.57 one month later. Theoption costs $3,000 in cash. The relevant information is shown inthe table below:

spot rateOption value
At the date of sale0.55$3,000
One month late (i.e., at settlement)0.62

Required:

(i) In accordance with NZ IFRS 9, show the journal entry torecord the sale and any additional journal entries that arerequired through to (and including) settlement.

(ii) What is the most that Honey Ltd can lose overall in thishedging activity (regardless of what the exchange rate is atsettlement date)? Show all workings.

Answer & Explanation Solved by verified expert
4.2 Ratings (841 Votes)
    See Answer
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Q

What does Terry Collingsworth, an attorney with the International Labor Rights Fund, have to gain by...

Finance
Q

What is the advantage of using double negative 3 cells (DN3) cells to analyse gene expression...

Biology
Q

The demand for electric power is usually much higher during the day than it is at...

Mechanical Engineering
Q

52 After a certain lapse of time the fraction of radioactive A radic polonium undecayed...

Physics
Q

Design an experiment based on one of the following simulations Ohm s Law Pendulum Lab...

Physics
Q

Use synthetic division x3 7x 14x 8 x 4 Ox 13x 66 272 x 4...

Algebra
Q

Calculate the company's earnings per share on common stock. Round your answer to the neares

Accounting
Q

Adjusting Entries and Adjusted Trial Balances Emerson Company is a small editorial services company owned...

Accounting
Q

Using value chain analysis, describe three ways that MIS can help a company improve performance...

Accounting
Q

Assume the following information appears in the standard cost card for a business that makes...

Accounting
Q

Question 7 of 10 - / 10 !!! View Policies Current Attempt in Progress The...

Accounting
Q

7. What were some of the worst performing commodities in 2022 ? 8. Pick one...

Finance