Question: Bronze Ltd enters into a call option contract with Titanium Ltd that gives Bronze Ltd the right to acquire 200,000 shares in Aqua Ltd. The

Bronze Ltd enters into a call option contract with Titanium Ltd that gives Bronze Ltd the right to acquire 200,000 shares in Aqua Ltd. The options premium is $0.30 each. The details of the options contract are:

Contract date 1 March 2021

Settlement terms Net cash settlement

Exercise date (only at maturity) 31 August 2021

Exercise right holder Gold Ltd

Exercise price per share $2.00

Share price at maturity $2.45

Number of shares under option contract 200,000

Fair value of option contract on 1 March 2021 $60,000 ($0.30 per option)

Fair value of option contract on 30 June 2021 $70,000 ($0.35 per option)

Fair value of option contract on 31 August 2021 $90,000 ($0.45 per option)

1. Prepare the journal entry for Bronze ltd as the call option holder.

2. Explain whether Bronze Ltd would classify the options as a debt instrument, a derivative financial instrument, or an equity instrument. Justify your answer. Could Bronze Ltd measure the options subsequent to initial recognition at fair value through other comprehensive income?

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