QUESTION 2 On 1 January 2020, Nazirah Bhd purchased 200,000 ordinary shares of Naif Bhd at RM15 per share inclusive of transaction cost. The investment was measured at fair value through profit or loss. The closing price of Naif Bhd shares is RM17 at the end of 31 March 2020. On 1 April 2020, to protect the value of its investment in Naif Bhd, Nazirah Bhd purchased 300,000 put options that give it the right to sell Naif Bhd shares at RM17 per share within six months. The price paid for the stock option is RM1.20. The hedge risk in this case is the market price of Naif Bhd shares. The quoted price for the shares and options are as follows: Ordinary Shares Put Options 30 June 2020 RM16.50 RM1.00 30 September 2020 31 December 2020 RM18.00 RM20.00 expired On 30 September 2020, Nazirah Bhd decided to discontinue with the hedging. REQUIRED: (a) Prepare all the required journal entries for the above transactions. (b) Explain FOUR (4) basic principles in accounting for derivatives.

QUESTION 2 On 1 January 2020, Nazirah Bhd purchased 200,000 ordinary shares of Naif Bhd at RM15 per share inclusive of transaction cost. The investment was measured at fair value through profit or loss. The closing price of Naif Bhd shares is RM17 at the end of 31 March 2020. On 1 April 2020, to protect the value of its investment in Naif Bhd, Nazirah Bhd purchased 300,000 put options that give it the right to sell Naif Bhd shares at RM17 per share within six months. The price paid for the stock option is RM1.20. The hedge risk in this case is the market price of Naif Bhd shares. The quoted price for the shares and options are as follows: Ordinary Shares Put Options 30 June 2020 RM16.50 RM1.00 30 September 2020 31 December 2020 RM18.00 RM20.00 expired On 30 September 2020, Nazirah Bhd decided to discontinue with the hedging. REQUIRED: (a) Prepare all the required journal entries for the above transactions. (b) Explain FOUR (4) basic principles in accounting for derivatives.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question 1 (a)
No. 26
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