Question

Ex.3: Baadami Dry Fruits Ltd. is an exporter. Company closes its accounts on 31" March. It receives an order in February 2018 from a British company to deliver 18.000 kg of baadam in May 2018. Due to quality and logistic concerns, it is planning to buy baadam from the physical market in May to deliver them abroad. However, its MD is worried that prices might rise by May. By hedging, he can lock in the purchase price in February itself, and protect the company from rise in prices. The price of 31" May 2018 contract in futures market is 3 850 per kg. The company buys 18,000 kg of baadam via May 2018 futures contracts in February 2018 at 850 per kg. On 10" march, 2018 the exporter gets a call from the overseas buyer who requests the reduction of 3,000 kg in the carlier order which is agreed upon. Futures contract price on 10th March 2018 was 870 per kg. The exporter sold 3,000 kg in the futures market on 10th march and settled the deal in cash. Spot market price on 31" March 2018 was? 835 per kg. Requirement: Analyze the case above and determine the following details to be reported in the financial statements. Encircle the answer where required: Answer table. Case let 3. Q. No. Answer 2 Rs.... Nature of the hedge in this case The total gain on ineffective portion This gain to be treated as The total loss on effective portion This loss is unrealized or realized as on 31-03-2018 This loss to be treated as OCI Fair value of the effective hedge (Derivative liability ) as on 31/03/2018 This derivative liability is a current financial liability or non-current Realized income / OCI Rs.... Realized / Unrealized YES / NO Rs.... Current / Non-current en financial liability or non-currenzo is 8 | Rs. Current / Non-current

Answer 1

Answer to the Questions.

Answers

Question No.	Answer
1. Nature	Nature of Hedging is Forward Exchange Contract
2. Gain on Ineffective	(870-850)*3000KGs = Rs.60000
3. Gain to be Treated	as Realized Income
4. Loss on effective portion	(850-835)*15000KGs = Rs.225000
5. Unrealized or realized	Unrealized
6. OCI	No
7. Fair Value	Rs.835*15000Kgs =Rs.12525000
8. Liability	Current Liability