Foreign Currency Translation and Hedge Accounting

PCG’s Vanuatu subsidiary reports in Vatu (VT). The subsidiary sold goods to PCG for VT
5,000,000 on 15 May 2025. Settlement occurred on 30 June 2025 when the exchange rate
moved from SBD 1 = VT 13.0 to VT 14.0. Additionally, PCG entered into a forward exchange
contract on 1 May 2025 to hedge the payable, with delivery due 30 June 2025.

Required:

1. Evaluate the treatment of the foreign currency payable and related hedge contract in
   PCG’s books, referencing IAS 21 and IFRS 9.

2. Explain under what conditions hedge accounting may be applied and the ethical
   implications of selective hedge designation.

3. Provide necessary journal entries for both entities and explain how exchange
   differences are presented in the consolidated financial statements.