Assuming that Brandt entered into a forward contract to sell 10 million South Korean won on December 1, 2020, as a fair value he

Question

2 years ago

8

dge of a foreign currency receivable, what is the net impact on its net income in 2020 resulting from a fluctuation in the value of the won

1 answer:

romanna [79] · Answer 1 · 2023-03-12T19:36:00+03:00

The net impact on its net income in 2020 resulting from a fluctuation in the value of the won is : $250 decrease in net income.

First step is to calculate the Discount on forward contract

Discount on forward contract=[($0.0035 − $0.0034) × 10 million

Discount on forward contract=$0.0001 × 10 million

Discount on forward contract= $1,000

Second step is to amortized the Discount on forward contract

Amortization of discount on forward contract=$1,000 / 4 months

Amortization of discount on forward contract=$250 per month

Based on the above calculation foreign exchange loss of the amount of $250 will be recognized on December 31, 2020.

Therefore the net impact on its net income in 2020 resulting from a fluctuation in the value of the won is a decrease of $250.