Statement of total comprehensive income for the year, Financial Management

At 31 July 2010 this instrument meets the definition of a derivative:

  • Small or no initial investment.
  • Its value is dependent on an underlying economic item; exchange rate.
  • Its settlement will take place at some future date.

As a imitative it should be accounted for as an "asset or liability held at fair value throughout profit or loss". The value of the imitative instrument will be the difference between the values of the contract when settled evaluated with the cost of B$2m being purchased at the spot rate at the year-end date.

Cost of B$2m at a contracted rate of B$0.64 = A$3,125,000

Cost of B$2m at the forward rate of B$0.70 = A$2,857,143

The imitative results in a liability at the year-end date of A$267,857 (A$3,125,000 - A$2,857,143) as the contract has inauspicious terms when compared to the spot rate. The loss on imitative would be charged to the income statement in the year to 31 August 2010.

Recorded as:

Dr        Income statement (loss on derivative)                        A$267,857

Cr        Liabilities - derivatives                                     A$267,857

(b) (i)

If the imitative was designated as a prevarication tool in a cash flow hedge then the loss of A$267,857 would be recognised in other complete income until the related cash flow (hedged item) occurred, and shown as a loss in other complete income in the year ended 31 August 2010. This ensures that the movements in the hedge item and the hedging item can be offset in the same accounting period.

(ii) Statement of total comprehensive income for the year ended 31 August 2010

                         A$

Profit for the year

1,000,000

Other comprehensive income:

Loss on hedging item

(267,857)

Total comprehensive income

732,143

 

Posted Date: 5/29/2013 5:09:19 AM | Location : United States







Related Discussions:- Statement of total comprehensive income for the year, Assignment Help, Ask Question on Statement of total comprehensive income for the year, Get Answer, Expert's Help, Statement of total comprehensive income for the year Discussions

Write discussion on Statement of total comprehensive income for the year
Your posts are moderated
Related Questions
The Directors of Rohan Plc are discussing the importance of the dividend policy on the market value of their firm. The Chairman considers that the dividend is important and does a

Degree of Operating Leverage A measure of the firm's operating leverage, which is calculated as the contribution margin distributed by income before taxes. A rigid with a high

Regulatory Framework Abroad A regulatory mechanism, in terms of finance, is the mechanism to regulate the working of the financial system. Its function is to ensure the complia

A firm has sales of $6,500, net income of $500, total assets of $12,000, and total equity of $700. Interest expense is $1000. What will be the common-size statement value of the in

N egotiation You can also negotiate with the bidders based on the requirements as mentioned below. You can negotiate only with the lowest evaluated responsive and qualified

Issuing Procedure Treasury bills are sold using the auction procedure. The Treasury entertains both competitive and non-competitive tenders for T-Bills. Government securities f

Question: Explain: (a) the advantages and disadvantages, to a company, of debt finance over equity finance; (b) the reasons why a company may choose to issue preference s

discuss the applicability of financial management in respect to poultry farming in uganda

The objective of the assignment is to develop an understanding of the factors that influence changes in the prices of stocks. *A person has $ 100,000 that they have to invest in s

Enron did not manages its trade account receivable in significant manner that made huge financial loss for the organizations. Hence, the management faced biggest fraud due to the f