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Comprehensive Case 2 A201 H3 PDF
Comprehensive Case 2 A201 H3 PDF
COMPREHENSIVE CASE 2
GROUP : H/3
PREPARED FOR :
PREPARED BY :
(a) separating the intrinsic value and time value of an option contract and
designating as the hedging instrument only the change in intrinsic value of
an option and not the change in its time value.
(b) separating the forward element and the spot element of a forward contract
and designating as the hedging instrument only the change in the value of
the spot element of a forward contract and not the forward element;
similarly, the foreign currency basis spread may be separated and excluded
from the designation of a financial instrument as the hedging instrument.
(c) a proportion of the entire hedging instrument, such as 50% of the nominal
amount, may be designated as the hedging instrument in a hedging
relationship. However, a hedging instrument may not be designated for a
part of its change in fair value that results from only a portion of the time
period during which the hedging instrument remains outstanding.
1
An entity may view in combination, and jointly designate as the hedging instrument,
any combination of the following (including those circumstances in which the risk or
risks arising from some hedging instruments offset those arising from others):
2
(b) i) Determine the information (i.e. asset/liability, revenue/expense and disclosure)
to be reported in the financial statements for the year ended 31 December 2019 with
regard to the use of derivative instrument.
The balance of cash, the cash flow hedge of the hedging factor and the cash flow hedge
of the time value are the details to be recorded in the financial statements. The cash balance will
be reported as a current asset in the Statement of Financial Position after purchasing the call
option on 31 December 2019. In the meantime, both the hedging part cash flow hedge reserve
and the time value cash flow hedge reserve will be reported in the Statement of Profit and Loss
and Other Comprehensive Income (OCI).
Elements such as classes of financial instruments, significance of financial instruments
in Statement of Financial Position, significance of financial instruments in Statement of
Comprehensive Income, reclassification, de-recognition, quantitative and sensitivity disclosures
on the risks must be included in the disclosures requirement. Interest rate risks, credit risks,
market risks and price risks need to be included too.
BINA AUTO
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2019
ITEM TO DISCLOSURE RM RM
Other comprehensive :
Comprehensive gain :
Gain on cash flow hedge reserve - hedging element 278,500
278,500
Comprehensive loss :
Loss on cash flow hedge reserve- time value element 114,497
Loss on foreign currency call option 164,003
(278,500)
Net other comprehensive income 0
3
BINA AUTO
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2019
ITEM TO DISCLOSURE RM RM
Current asset :
Cash (154,725)
Non-current assets :
Derivative financial assets 154,725
0
Equity :
Cash flow hedge reserve - hedging element (114,497)
Cash flow hedge reserve- time value element 278,500
Foreign currency call option (164,003)
0
4
ii) Show the necessary journal entries for 2019 and 2020.
Date Account tittle Debit (RM) Credit (RM)
2019 Foreign Currency Call Option 154,725
Jan 1 Cash 154,725
June 30 Foreign currency call option 164,003
(RM318,728-RM154,725)
Cash flow hedge reserve (OCI)- time value 114,497
element
Cash flow hedge reserve (OCI)- hedging
element 278,500
(RM0.6746-RM0.6189) x CNY5,000,000
2020 Purchases 2,849,000
June 30 Account payable 2,849,000
RM0.5698 x CNY5,000,000
July 31 Account payable 57,000
Gain on foreign exchange 57,000
(RM0.5584-RM0.5698) x CNY5,000,000