Holder Ltd purchases a option contract from Issuer Ltd that gives Holder Ltd the right to acquire 100 000 options in Torquay Ltd for a price (exercise price) of $10.00 per share. When the contract was exchanged the price of Torquay Ltd shares were $9.00 each. The option entitles Holder Ltd to exercise the options and buy the shares any time within the next six months. If the options are not exercised within the six month period, then the options will expire.

Required:

Determine whether a financial liability or financial asset exists from the perspective of Holder Ltd and Issuer Ltd improbable that Holder Ltd will ever exercise the options, will this change the classification of the options as either financial assets or financial liabilities?

Answer rating: 100% (QA)

For holder Ltd This derivative contract gives an option for the h... View the full answer