Laila company produces colorful 100% cotton shirts and the entity needs 75,000 kilos of raw materials in the production process. On December 1, 2017, the entity purchased a call option as a cash flow hedge to buy 75,000 kilos on July 1, 2018. The option strike price is P100 per kilo. The entity paid P75,000 for the call option. This derivative option contract means that if the market price is higher than P100, the entity can exercise the option and buy the asset at the strike option price of P100. If the market price is lower than P100, the entity can throw away the option and buy the asset at the cheaper price. The market price per kilo is P110 on December 31, 2017 and 115 on July 1, 2018. What is the cash settlement from the speculator on July 1, 2018
32. Laila company produces colorful 100% cotton shirts and the entity needs 75,000 kilos of raw materials in the production process. On December 1, 2017, the entity purchased a call option as a cash flow hedge to buy 75,000 kilos on July 1, 2018. The option strike price is P100 per kilo. The entity paid P75,000 for the call option. This derivative option contract means that if the market price is higher than P100, the entity can exercise the option and buy the asset at the strike option price of P100. If the market price is lower than P100, the entity can throw away the option and buy the asset at the cheaper price. The market price per kilo is P110 on December 31, 2017 and 115 on July 1, 2018.
What is the cash settlement from the speculator on July 1, 2018?
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