Question

On January 1, 2020, Roper Inc. agrees to buy 3 kg of gold at $40,000 per kilogram from Golden Corp on April 1, 2020, but does not intend to take delivery of the gold. On the day that the contract was entered into, the fair value of this forward contract was zero. The fair value of the forward subsequently fluctuated as follows:

Date	Fair Value of Forward Contract
January 20, 2020	$450
February 6, 2020	125
February 28, 2020	360
March 14, 2020	700

On the settlement date, the spot price of gold is $41,000 per kilogram. Assume that Roper complies with IFRS.

Assume the same facts except that the forward contract is a futures contract that trades on the Futures Exchange. On January 1, 2020, Roper is required to deposit $65 with the stockbroker as a margin.

Instructions

a.  

Prepare the journal entries for the day the futures contract was signed.

b.  

Prepare the journal entries to recognize the changes in the fair value of the futures contract.

c.  

Prepare the journal entries that would be required if Roper settled the contract on a net basis on April 1, 2020.

Answer 1

Part a
Fair Value is nil so no entry needed on day of contract signing.
Part b
Date	Account	Debit	Credit
January 20, 2020	Derivatives-Financial Instrument	$       450
	Gain		$       450
	(Being entry passed to record change in fair value)
February 6, 2020	Loss ($450-$125)	$       325
	Derivatives-Financial Instrument		$       325
	(Being entry passed to record change in fair value)
February 28, 2020	Derivatives-Financial Instrument ($360-$125)	$       235
	Gain		$       235
	(Being entry passed to record change in fair value)
March 14, 2020	Derivatives-Financial Instrument ($700-$360)	$       340
	Gain		$       340
	(Being entry passed to record change in fair value)
Part c
Date	Account	Debit	Credit
1-Apr-20	Cash (41000-40000)*3kilo	$    3,000
	Derivatives-Financial Instrument		$       700
	Gain		$    2,300
	(Being entry passed to record settlement)