Feet First plc (FF) manufactures an iconic brand of footwear in the UK. FF has a financial year ending 31 December 2022.

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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.
Question 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 points)
q2) Explain the accounting policy choice for FF in respect
of the forward currency contract above. (4 points)
q3) Power (2010) critiques the primacy given by standard
setters of fair value in International Financial Reporting
Standards (IFRS). Using the points raised by Power (2010) and
examples from accounting standards you have studied, evaluate the
factors which give rise to the dominance of fair value as a
measurement for assets and liabilities in (IFRS). (10 points)
Reference: Power, M (2010), Fair value accounting, financial
economics and the transformation of reliability, Accounting and
Business Research, 40 (3), 197-210