of the transaction DR (£) CR (£) Debtors 3,937,007 Sales 3,937,007 To record the sale of 5 million euros at the spot rate of $1.27 = $1 U.S. dollar. Here, there are no accounting entries for the forward foreign currency contract since its fair value is zero. DR (£) CR(£) Debtors 4,000,000 Sales 4,000,000 To record the sale of 5 million euros at the spot rate of $1.25 = $1 U.S. dollar. DR (£) CR (£) Debtors 60,993 Exchange gain 60,993 To retranslate the seller of 5 million euros at the year end sport rate of $1.27 = $1 U.S. dollar. DR (£) CR (£) Profit on derivative 31,746 Derivative gain 31,746 To value the derivative at the year-end fair value which is the difference between the forward rate and the agreed forward rate at the balance sheet for the contract maturing after 6 months According to Parameswaran, (2011), recognising the impact of the exchange rates on the value of the value of the debtor, the derivative cancels each other out. In this case, the difference that is seen between the debtor and the gain on the derivative on the other party is attributed to the spot rate being used for the debtor and the forward rate for the derivative (Ltd, 2017). References Ltd, P. K. F. I. (2017). Wiley IFRS 2017 Interpretation and Application of IFRS Standards. Somerset John Wiley & Sons, Incorporated 2017 Parameswaran, S. K. (2011). Fundamentals of financial instruments: An introduction to stocks, bonds, foreign exchange, and derivatives. Hoboken, N.J: Wiley. Walmsley, J. (2000). The foreign exchange and money markets guide. New York: Wiley See also Foreign exchange derivative External links Forward Exchange Rate Calculator References Financial economics Foreign exchange market