Question

On January 1, 2020, Crane 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 futures contract that trades on the Futures Exchange was zero. On January 1, 2020, Crane is required to deposit $70 with the stockbroker as a margin. The fair value of the futures subsequently fluctuated as follows:

Date		Fair Value of Futures Contract
January 20, 2020		$466
February 6, 2020		$126
February 28, 2020		$370
March 14, 2020		$850

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

QUESTIONS:

A) Prepare the journal entry 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 entry that would be required if Crane settled the contract on a net basis on April 1, 2020.

Answer 1

Date	Accounts Titles and Explanation	Debit($)	Credit($)
Jan 20, 2020	Derivative - Financial Assets/Liabilities	466
	Gain		466
Fab 6, 2020	Loss	340
	Derivative - Financial Assets/Liabilities		340
Feb 28, 2020	Derivative - Financial Assets/Liabilities	244
	Gain		244
March 14, 2020	Derivative - Financial Assets/Liabilities	480
	Gain		480

Part C

Date	account titles and explanation	debit	credit
April 1, 2020	cash (3*(41000-40000)	3000
	Derivatives - financial assets / liabilities		850
	Gain (3000-810)		2150