Reference no: EM132608701
Question - On October 1, 2016, Philippines took delivery from Ohio, USA firm of inventory costing $1,425,000. Payment is due on January 30, 2017.
Concurrently, Philippines paid an amount of cash to acquire an at-the-money call option for $1,425,000.
The option premium paid is P19,625.
The spot price at the inception date is P44.40.
The spot price at the statement of financial date is P44,423.
The effective porting of the option contract on January 30, 2017 amounts to P38,475.
The gain on the derivative instrument on January 30, 2017 using nonsplit accounting amounts to P3,225.
Required -
1) What is the gain/(loss) on hedging instrument due to change in the ineffective portion on December 31, 2016?
a. 17,150
b. 5,700
c. (17,150)
d. (5,700)
2) What is the gain (loss) on hedging instrument due to change in the effective portion on December 31, 2017?
a. 5,700
b. (5,700)
c. 3,225
d. (3.225)
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