Question

On January 1, 2017, Cullumber Inc. agrees to buy 3 kilos of gold at $39,000 per kilo from Golden Corp on April 1, 2017, 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, 2017		$546
February 6, 2017		$124
February 28, 2017		$362
March 14, 2017		$730

On the settlement date, the spot price of gold is $40,000 per kilo. Assume that Cullumber complies with IFRS.

Prepare the journal entry for the day the forward contract was signed.

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

Prepare the journal entry that would be required if Cullumber settled the contract on a net basis on April 1, 2017.

Answer 1

A)

Jan 1, 2017 Gold Receivable A/c Dr                            $39,000

To FW Contract Payable A/c                                       $39,000

B) Jan 20,2017 Gold Receivable A/c Dr                       $546

To Exchange gain A/c                                                  $546

Feb 06, 2017 Exchange gain A/c Dr                             $362

To Gold Receivable A/c                                               $362

Feb 28,2017 Gold Receivable A/c Dr                           $238

To Exchange gain A/c                                                  $238

March 14,2017 Gold Receivable A/c Dr                       $368

To Exchange gain A/c                                                  $368

C) Forward contract payable A/c Dr                             $39,0000

Cash A/c Dr                                                                 $1000

To Gold Receivable A/c                                               $39,730

To Exchange gain A/c                                                  $ 270

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