a) Feet First plc (FF) manufactures an iconic brand of footwear in the UK. FF has a financial year ending 31 December 20

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A Feet First Plc Ff Manufactures An Iconic Brand Of Footwear In The Uk Ff Has A Financial Year Ending 31 December 20 1 (125.4 KiB) Viewed 14 times

a) Feet First plc (FF) manufactures an iconic brand of footwear in the UK. FF has a financial year ending 31 December 2022. In March 2023, as part of an international expansion, FF intends to buy a new factory in France. The building will cost €5,000,000. FF's CEO is concerned about the foreign currency risk and wants to know for certain how much sterling FF will need in March 2023. On 1 September 2022, FF proposes to enter into a forward currency contract. Assume that the following apply to the contract: On 1 March 2023 FF will buy €5,000,000 at a forward rate of £1 = €1.10 At the inception of the contract, the fair value of the contract will be £nil. At 31 December 2022, a similar contract for €5,000,000 could be bought at a forward rate for settlement on 1 March 2023 at £1 = €1.25. ● FF has decided to use hedge accounting. REQUIRED: i) Set out and explain the financial reporting adjustments for the forward currency contract in the financial statements for FF for the year ending 31 December 2022 under three alternative scenarios; a) As a cashflow hedge b) As a fair value hedge; and c) Hedge accounting is not applied. Include journal entries. (16 marks) ii) Explain the accounting policy choice for FF in respect of the forward currency contract above. (4 marks)