1.Exports Ltd sells goods to a company based in the United States on 1 April 2017. The invoice is denominated in the US dollars, and is $US750 000. The invoice will be due on 31 May 2017. The amount is guaranteed by a local bank so the payment is certain. The sport rate of the date of transaction is $A1 = $US0.75.
Exports Ltd is concerned that the A$ will fluctuate and thus decides to enter a forward-rate agreement with the bank. According to the agreement, the bank agrees to buy $US 750 000 from Exports Ltd on 31 May 2017 at an agreed forward rate of $A1 = $US0.80.
i. Explain how Exports Ltd has reduced the risk of $A fluctuation by entering theforward-rate agreement.
ii. How much will Exports Ltd receive from the sale of US$750 000 to the bank, in Australian dollars?
2.Darlington Corporation has the extracted statement of financial position as at 30th June 2017 below:
Statement of financial position before set-off
Loans payable $1 500 000 Loans Receivable $1 800 000
Shareholders’ equity $1 500 000 Non-current assets 1 200 000
$3 000 000 $3 000 000
In addition, Darlington Corporation has an amount of $450 000 owing to Seaview Ltd, and an amount of $600 000 receivable from Seaview Ltd.
i. Assuming a right of set-off exists. Why would Darlington Corporation want to perform a set-off with Seaview Ltd?
ii. What would be the impact on the debt to asset ratio and the debt to equity ratio of Darlington Corporation, which result from the set-off with Seaview Ltd?
iii. Prepare a post set-off statement of financial position for Darlington Corporation.