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

See similar textbooks

Related questions

Q: e) Suppose that on 31 Dec 2020 ABC purchased a new logistics and storage facility for €100.000, to…

A: Adjusted trial balance: Adjusted trial balance can be defined as the trial balance prepared after…

Q: QUESTION FOUR At its year end, 31 March 2019, entity JBK held 60,000 GHS1 shares in a listed entity,…

Q: Copenhagen Company granted 200 share appreciation rights to each of the 500 employees on January 1,…

A: The share appreciation right recognize the financial liability and employee compensation for…

Q: 16 On January 1, 2019, Aronsen Company acquired 90 percent of Siedel Company's outstanding shares.…

A: These are the accounting entries made to combine the financial statements of two or more companies…

Q: Monroe Ltd acquired a parcel of 50 000 call options in Sunrise Ltd on 1 November 2018. The price of…

A: Comprehensive income statement: A statement that reflects operating income reported from the income…

Q: What is the value of investment in associate shown in the consolidated statement of financial…

A: Bintik has Received = 100,000 x 30% = 30,000 So in Consideration he has given Shares of Bintik =…

Q: Harrison Co. purchases 5,000 of the 50,000 outstanding ordinary shares of Taylor, Inc for £500,000…

A: Formula: Investment balance at year end = Beginning investment balance + net income - Dividends paid

Q: Required: a) Prepare an acquisition analysis for Trump Ltd's acquisition of the net assets of Bush…

A: Acquisition of the entire business can be defined as when one company takes over the entire business…

Q: Mungo Ltd has entered into two contacts involving financial instruments as follows. On 1 July 2020,…

A: The bond issuer, or the borrower who raised the funds, must record the bonds as a financial…

Q: Q2. Sky Ltd acquired all the issued shares of Jupiter Ltd on 1 January 2019. The following…

A: The journal entry can be defined as the process to record the business transaction in the accounting…

Q: On 1 July 2019, Quick Buck Ltd took control of the assets and liabilities of Eldorado Ltd. Quick…

A: Goodwill = Purchase Consideration - Net identifable assets Where, Net identifable assets = Total…

Q: On January 1, 2018, BLEED Inc. acquired 10% interest in an investee for P3,000,000. The investment…

A: Investments that are held for trading are measured at fair value through profit and loss account.…

Q: Assume that Adams Industries holds 59,000 shares of FedEx Adams to exercise significant influence…

A: FV-NI is used to offer a more accurate portrayal of the current market values of various financial…

Question

100%

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

No. 26
Orange LTD has the following investments at December 31, 2020; Fair value Historical cost Sept 30, 2019 $15,000 Fair value Sept 30, 2020 $25,000 Fair value Dec 31, 2020 $30,000 Shares of DEF Bonds of Brooke purchased at par value) Shares of CooksTown Shares of Tulip $25,000 10,000 12,000 18,000 12,000 18,000 16,500 11,000 16,000 19,500 12,500 16,000 20,500 Orange, whose year-end is Sept. 30, purchased the share of Tulip on January 1, 2019, If Orange irrevocably elected to classify its investment in Tulip at fair value through OCL what amount will be reported in other comprehensive income at September 30, 2020? $1,500 gain O $2,500 gain. et O $19,500 O $3,000 gain.
Trump Ltd acquired all the assets and liabilities of Bush Ltd on 30 June 2020. The purchase consideration was as follows: $1,000,000 in cash paid on the acquisition date Two shares in Trump Ltd for every one share in Bush Ltd. Bush Ltd has 2,000,000 shares on the issue on 30 June 2020. On 30 June 2013 Trump Ltd shares were quoted on the ASX at $2.50 per share. Deferred payment of $500,000 to be paid on 30 June 2014. Trump Ltd’s cost of capital is 7% which represents a one-period present value factor of 0.9346 Should the price of Trump Ltd shares fall below $2.50 in the six months following the acquisition Trump Ltd is required to pay a cash contingent consideration? It is estimated that there is a 60% probability that the share price will fall to $2.45 in this period. Other information Trump Ltd incurred legal and other costs associated with the acquisition of $10,000 Trump Ltd incurred share issue costs of $4,000 The assets and liabilities acquired from Bush Ltd are as…
On December 1, 2019, PT ABC exchanged 20.000 shares of its Rp10 par value ordinary shares held in treasury for a used machine. The treasury shares were acquired by ABC at a cost of Rp40 per share, and are accounted for under the cost method. On the date of the exchange, the ordinary shares had a fair value of Rp55 per share (the shares were originally issued at Rp30 per share). As a result of this exchange, ABC’s total equity will increase by: