Fourteen days after the forward rate agreement has been entered into by Litra Ltd, is it possible for the company to retrospectively designate the hedging arrangement as such for the purposes of AASB 9?

Litra Ltd has a foreign currency payable of FC68 000 arising from the acquisition of

 

inventory, which is payable in 60 days’ time. On the same date as the purchase of

inventory occurred, Litra entered into a forward rate agreement with XY Bank for the

delivery of FC68 000 in 60 days’ time. Management entered into this agreement because

the company’s accountant had drawn attention to the large number of likely inventory

purchases denominated in FC. Fourteen days after entering the forward rate agreement,

it has become obvious that the agreement is effectively hedging 100% of the foreign

currency risk of the payable of FC68 000.

Required

Fourteen days after the forward rate agreement has been entered into by Litra Ltd, is it

possible for the company to retrospectively designate the hedging arrangement as such

for the purposes of AASB 9? Explain. (LO6)

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