FutureHolding Ltd holds a well-diversified portfolio of shares with a current market value on 1 July...

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FutureHolding Ltd holds a well-diversified portfolio of shares with a current market value on 1 July 2021 of $3 million. On this date, FutureHolding Ltd decides to hedge the portfolio by taking a sell position in 10 ASX SP1200 futures units. 1 July 2021 1 September 2021 1 December 2021 The ASX SP1200 index futures is 6,550. Each contract unit is valued at $50 per index point (e.g., when the index is 6,550, the total price of the futures contract is calculated as 6,550 x 10 x $50 =$3,275,000). The futures broker requires a deposit of $300,000. The ASX SP1200 index futures has fallen to 6,500 and the value of the company's share portfolio has fallen to $2,990,000. FutureHolding Ltd decides to sell its shares and close out its futures contract. At this date the portfolio has a market value of $2,985,000 and the ASX SPI200 index futures is 6,510. Assume all entries have been made mark to market on the futures contract. Required a) Prepare the journal entries required to record the above hedging transactions from 1 July through to 1 December 2021 for FutureHolding Ltd in accordance with AASB 9 Financial Instruments. Exclude journal narrations. (10 marks) b) What rates should be used to translate the expense and income items of a foreign entity's financial statements? When would average rates be acceptable? (4 marks) FutureHolding Ltd holds a well-diversified portfolio of shares with a current market value on 1 July 2021 of $3 million. On this date, FutureHolding Ltd decides to hedge the portfolio by taking a sell position in 10 ASX SP1200 futures units. 1 July 2021 1 September 2021 1 December 2021 The ASX SP1200 index futures is 6,550. Each contract unit is valued at $50 per index point (e.g., when the index is 6,550, the total price of the futures contract is calculated as 6,550 x 10 x $50 =$3,275,000). The futures broker requires a deposit of $300,000. The ASX SP1200 index futures has fallen to 6,500 and the value of the company's share portfolio has fallen to $2,990,000. FutureHolding Ltd decides to sell its shares and close out its futures contract. At this date the portfolio has a market value of $2,985,000 and the ASX SPI200 index futures is 6,510. Assume all entries have been made mark to market on the futures contract. Required a) Prepare the journal entries required to record the above hedging transactions from 1 July through to 1 December 2021 for FutureHolding Ltd in accordance with AASB 9 Financial Instruments. Exclude journal narrations. (10 marks) b) What rates should be used to translate the expense and income items of a foreign entity's financial statements? When would average rates be acceptable? (4 marks)

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Hedging is a process of reducing risk involved in a transaction by taking a corresponding entry in t... View the full answer