Question

On January 1, 2020, Blossom Inc. agrees to buy 3 kg of gold at $32,000 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, Blossom is required to deposit $66 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		$455
February 6, 2020		$130
February 28, 2020		$362
March 14, 2020		$750

On the settlement date, the spot price of gold is $33,000 per kilogram. Assume that Blossom complies with IFRS.

QUESTION:

1) Prepare the journal entry for the day the futures contract was signed.

Date	Account Titles and Explanation	Debit	Credit
January 1, 2020	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount

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

Date	Account Titles and Explanation	Debit	Credit
transaction date	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount
transaction date	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount
transaction date	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount
transaction date	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount

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

Date	Account Titles and Explanation	Debit	Credit
April 1, 2020	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount

Answer 1

ANSWER:

1)

Fair Value is nil so no entry needed on day of contract signing.

2)

Date	Account	Debit	Credit
January 20, 2020	Derivatives-Financial Instrument	$       455
	Gain		$       455
	(Being entry passed to record change in fair value)
February 6, 2020	Loss ($455-$130)	$       325
	Derivatives-Financial Instrument		$       325
	(Being entry passed to record change in fair value)
February 28, 2020	Derivatives-Financial Instrument ($362-$130)	$       232
	Gain		$       232
	(Being entry passed to record change in fair value)
March 14, 2020	Derivatives-Financial Instrument ($750-$362)	$       388
	Gain		$       388
	(Being entry passed to record change in fair value)

3)

Date	Account	Debit	Credit
1-Apr-20	Cash (33000-32000)*3kilo	$    3,000
	Derivatives-Financial Instrument		$       750
	Gain		$    2,250
	(Being entry passed to record settlement)