Delta is an entity which prepares financial statements to 31 March each year. The functional currency of Delta is the dollar ($). The following events have occurred which are relevant to the year ended 31 March 2018:

Event (a)
On 1 January 2018, Delta entered into a contract with a foreign supplier. The terms of the contract were that the supplier would construct a large machine for Delta’s use and deliver the machine on 30 June 2018. The total construction price of 20 million groats (the currency of the supplier) is due for payment on 31 July 2018.

On 1 January 2018, Delta entered into an agreement for the forward purchase of 20 million groats. The settlement date for this forward purchase of foreign currency was 31 July 2018. Delta intends to use this forward purchase as a hedge of the expected cash outflow flows arising under the construction contract on 31 July 2018.

Delta wishes to use hedge accounting for this arrangement if this is possible under International Financial Reporting Standards. Delta has prepared all relevant documentation which is necessary to enable hedge accounting to be used if the qualifying conditions are met.

Data relevant to the construction contract and to the forward purchase of currency is as follows:

– Increase in expected cash flows arising under the construction contract between 1 January 2018 and 31 March 2018 = $2,600,000.
– Positive fair value of forward currency purchase contract at 31 March 2018 = $2,700,000. (9 marks)

Required:
Explain and show how the two events would be reported in the financial statements of Delta for the year ended 31 March 2018.

Note: The mark allocation is shown against each of the two events above.