East Cuisine Bhd (ECB) operates a chain of fine seafood restaurants. the company makes very detailed long-term
Question:
East Cuisine Bhd (ECB) operates a chain of fine seafood restaurants. the company makes very detailed long-term planning. On 1 April 2021 ECB determined that it would need to purchase 50,000 kilograms of Green Lobster on 30 June 2022. Because of the fluctuations in the price of Green lobster, on 1 April 2021 ECB negotiated a special forward contract to purchase 50,000 kilograms of green lobster on 30 June 2022. The price of Green lobster was RM110 per kilograms on 1 April 2021.
On 30 June 2022, ECB purchased 50,000 kilograms Green lobster at the spot price and settled the forward contract. The prices of green lobster during the hedging period were as follows:
date | spot price per kg |
1 april 2021 | RM110 |
30 june 2021 | RM115 |
31 december 2021 | RM105 |
30 june 2022 | RM112 |
The appropriate discount rate throughout the hedging period is 9% and dividend yield is 5%. ECB prepares financial statements on 30 June and 31 December. The company is able to demonstrate that all the requirement for hedge accounting as per MFRS 9 Financial Instrument are met and therefore it classifies the hedging of green lobster price risk as cash flow hedges
Intermediate Accounting
ISBN: 978-0324592375
17th Edition
Authors: James D. Stice, Earl K. Stice, Fred Skousen