Statement of total comprehensive income, Financial Management

Assignment Help:

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


Related Discussions:- Statement of total comprehensive income

Revenue bonds, Revenue bonds are the securities issued for financing ...

Revenue bonds are the securities issued for financing an entity for general      public-purpose. The securities issued for entity financing are backed up with the

Wcr expense ratios, Scenario:  ABC Company sells widgets in three varietie...

Scenario:  ABC Company sells widgets in three varieties (blue, red, and yellow) but has lost money for the past three years.  Competitive intelligence shows the Company's products

What is the value of ast stock, Brandon Michael Chu of Henry Law & Yang Yi ...

Brandon Michael Chu of Henry Law & Yang Yi Capital Limited believes that earnings and dividends at Alua Amanova & Shuwen Wang Technologies (AST) will continue to grow at 12% per ye

Types of floating-rate securities, Floating rate securities can be br...

Floating rate securities can be broadly divided into following two parts: Floating-rate securities that have constant quoted margin. Floating-rate sec

What is cash credit, Q. What is Cash Credit? A cash credit is an arrang...

Q. What is Cash Credit? A cash credit is an arrangement by which a bank allows his customer to borrow money up to a certain limit against some tangible securities or guarantees

What is fv of a single present cash flow, Q. What is FV of a Single Present...

Q. What is FV of a Single Present Cash Flow? the future value of a single cash flow is defined in term of equation as follows: FV = PV (1 + r)n Where, FV = Future value PV = Pr

Active portfolio strategy, Active Portfolio Strategy: An active portfo...

Active Portfolio Strategy: An active portfolio strategy is tracked by most aggressive investors and investment professionals who strive to make superior returns, after adjustm

Determine the factors of large organisations, Determine the factors of Larg...

Determine the factors of Large organisations -  Greater efficiency and productivity achieves economies of scale -  Easier to manage, organise and control workers through hie

Calculate the break-even point, A Video Rental store has two employees. The...

A Video Rental store has two employees. The Supervisor is paid $2,200 per month. The other employee, Mark is paid $1,200 per month. In addition, Mark is paid a commission of 20 cen

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd