Show the accounting entry priore makes on frirst december

Reference no: EM13903805

Unhedged transaction in a foreign currency

On 15 October x5, a Swiss retail co-op places a bulk order for 'Rosa' ragu sauce with Priore, an Italian food producer. The value of the contract is SFr 2 million. Priore delivers the goods on 1 December and the retail co-op pays the contract amount on 15 February x6, the due date. Priore's financial year- end is 31 December.

The rate of exchange between the euro (Priore's reporting currency) and the Swiss franc varies over this period. The spot rates on key dates are given below:

15 October x5	SFr 1.462 : A1
1 December	1.485
31 December	1.620
15 February x6	1.515

Priore does not hedge this foreign currency transaction. Its policy is to recognise unrealised exchange gains and losses on foreign currency transactions as they arise.

Required

Show the accounting entry Priore makes on 1 December x5 to record the sale. (Ignore the entry recording the cost of sales.) What is the exchange gain or loss on this contract that Priore recognises in x5? In x6?

Reference no: EM13903805

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