Financial Instruments: Recognition & Measurement
Autor: Priya Gnaeswaran • April 12, 2015 • Coursework • 669 Words (3 Pages) • 982 Views
MFRS 139 – Financial Instruments: Recognition & Measurement
Question 1:
On 1 April 2014, ABC Bhd has 10 metric tons of tin inventory, carried at cost of RM22,000 per metric ton. The company intends to sell the tin inventory on 30 June 2014. To hedge the volatility in tin prices, the company enters into a futures contract on 1 April 2014 to sell 10 metric tons of tin at RM30,000 per metric ton on 30 June 2014.
The following shows the price movements of tin per metric ton:
Date Spot price Futures price
1 Apr 2014 RM29,000 RM30,000
30 Apr 2014 RM31,000 RM32,000
31 May 2014 RM33,300 RM34,500
30 June 2014 RM35,000 RM35,000
On 30 June 2014, the company settles the futures contract. On the same date, the company sells it 10 metric tons of tin at RM35,000 per metric ton.
Required:
Show how the above transactions may be accounted for in each of the three months April, May & June 2014, assumed that if the followinghedge accounting is applied:
- Fair value hedge
- Cash flow hedge
Question 2:
On 1 Oct 2013, ABC Bhd forecasts that it would be purchasing 1,000 tons of crude palm oil (CPO) for its usage on 30 January 2014. The current spot price of the CPO is RM2,000 per ton. CPO contracts are traded in the CPO futures exchange (Bursa Malaysia Derivatives).
ABC Bhd expects that the CPO price would increase in year 2014. To hedge its exposure to the price risk of the CPO, it buys 1,000 tons of 31 December 2013 CPO futures at a price of RM2,050.
On 31 December 2013, the CPO spot price is RM3,000 and the futures contract is closed out. The company makes the purchase in 30 January 2014 and the spot price is RM2,950 per ton. ABC Bhd’s financial year ends on 31 December.
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