Soron Limited is a private company that uses derivatives to mitigate a variety of risks. Leon Price has just been hired as the new controller and has recently met with the CEO. The CEO has just explained to him the following derivatives that the company is currently party to.
(a) The company recently purchased 10,000 shares in a company. These shares are publicly traded. At the same time, the company purchased exchange-traded options to sell these shares at a future date.
(b) The company recently sold goods to a customer in the United States and the invoice was priced in U.S. dollars, which should be collected in six months. At the same time, to mitigate the loss on the exchange value of this receivable, Soron entered into a forward contract to sell the same amount of U.S. dollars in six months.
(c) Soron has a division that operates in Australia. All of the transactions in this division are translated into Canadian dollars for reporting purposes. In order to mitigate the risk of the exchange rate fluctuation between the Australian dollar and the Canadian dollar, the company has entered into forward contracts to buy Australian dollars in the future at
varying amounts over the next year.
Instructions
As Leon Price, explain to the CEO how the three derivatives should be reported under IFRS and ASPE.