wamapig nate e = venwmwe Kaamery DERIVATIVES iy Vaninate nate > 2 DenwWerwe agser 1. On January 1, 2019, an entity borrowed P5,000,000 from a bank at a variable rate of interest for 2 ‘years. Interest will be paid annually to the bank on December 31 and the principal is due on December 31, 2020. Under the agreement, the market rate of interest every January 1 resets the variable rate for that period and the amount of interest to be paid on December 31 Inconjunction with the loan, the entity entered into a “receive variable, pay fixed” interest rate swap agreement with another bank speculator as a cash flow hedge. The market rates of interest are 10% on January 1, 2019 and 12% on January 1, 2020. The: “underlying” fined interest rate is 10% The PV of 1 at 10% for one period is 91 and the PV of | at 12% for one period is .89. A 1. What is the derivative asset or liability on December 31, 2019? cas sm [Ri - tote $9,000 asset at alee tere aes Moe aiaetoo, ', 89,000 liability 2554 5,000.00 * (00,000 © M1.000asset we. gerense Seoz — (Suexcor.) nee, d. 91,000 liability ase 4 sew nacawrord tun toe, St tae _ wre h 2 amount should be Feporied ay interest expense for 2019? a. 600,000 IN FRPEnGE Looe (SMaIzZD UErOX (oon ». soooao Ae fe WT EPR g — (00u © 511000 MT cennace "gery wie 18 d. 700,000 Ge-eet ie San tae * 2. On January 1, 2019, on entity received a four-year P5,000,000 loan with interest payments occurring, lof | to be repaid on December 31, 2022. The interest for 2019 is the ling market rate of 10% on January 1, 2019, and the market interest rate every January T resets the variable rate of interest for that year. ‘The “underlying” fi 10%, In conjunction with the loan, the entity entered into a “reccive variable, pay agreement as cash flow hedge. The interest swap payment will be made on Deceinber 31 of each year The market rate of interest is 6% on January !, 2020 and 8% on January 1, 2021. The PV of an ordinary annuity of 1 at 66 for three periods is 2.67 ond the PY of an ordinary annuity of 1 at 8% for two periods is 1.78, 0 1, What is the derivative asset or liability on December 31, 20197 2. 600,000 asset AH SH pe Taath b. 600,000 liability 1%", cc. 534,000 asset d. 534,000 liability INT. expense Tox = aw, Shox [> 2. What is the derivative asset or liability on December 31, 2020? 178,000 asset. MM EMFENSE Fov.cce (SM -AGN) CASH SM a b 178.000 liability ey 30, ce PF ig ASH. SEAS a(OQe06 ©. 334,000 asset HiRG, | oon Lag Btuwe 113s 4. 334, 000 liability ‘ Ulu, Stece Eo. It xe, Yoo - ‘. : Veet aoe, 524, 000-To0,c00s (39 tos) F: 3. What amount of interest expense should be reported for 2020? [Six 000) a. 500,000 a6 b. 300.000 ques ©. 400,000 5 . yup, 000 i$ d. 156,000 sac a Scanned with CamScannerwill need to purchase 50,000 kilos of deluxe fish on July 1, 2020. On July 1, 2019, the entity negotiated a forward contract as a cash flow hedge with a reputable bank to purchase 50,000 kilos of deluxe lo or P2,500,000. y 3, An entity operates a chain of seateod restaurants. On July 1, 2019, the entity determined that fish on July 1, 2020 at a strike price of PSO per This derivative forward contract provis the market price of deluxe fish on July 1, 2019 is more than PSO, the difference is paid by the back to the entity. On the other hand, if the market price on July 1, 2020 is less than P50, tie entity will pay the difference to the bank. ‘The market price per kilo of the deluxe fis'\ is PS3 on December 31, 2019 and P52 on July 1, 2020. 1, What is the derivative asset or liability on December 31, 2019? 100,000 asset — $ 100,000 Hability 250,000 asset 250,000 liability o pose a ‘2, What amount should be recognized as cost of purchases on July 1, 20207 2,$00,000-$5 2. B. 2,600,000 ~ 3x $3,000715%, 00, ©. 2,750,000 4. 2,650,000 4. An entity produces colorful 100% cotton shirts and needs 50,000 kilos of raw materials in the production process, On December 1, 2019 the entity purchased a call option as a eash flow hedge to bbuy 50,000 kilos on July 1, 2020. The option strike price is P100 per kilo. The entity paid P50,000 for the call option. . This derivative option contract means that if the market price is higher than P100, the entity ean exercise the option aud buy the asset atthe strike option price of P100, If the market price is lower than 21000, the entity can throw: aus: the option and bythe asoxt al uhe cheaper price f ‘The market price per hilo is P110 on December 31,2019 and P115 om Jaly 1, 2020. 1, What is the derivative asset on December 3t, 2019? fc Soong is BetostPa b. 450,000“ 300 Chee opr 99,000 Uc eer, 0,009 C2. Whatis the cost of pared fities, S8 999,00 a. 5,750,000 76 OP fi Caw orn. IN20 b, 5,009,060 WS 100 = 15) sop00 = 3,09 PRA + B80go0- 50,00 £20500" ag, Tames 54,000 1S) 230 ee 4. 5,300,000 meow, {eve Pune ttage a FO Dee C3, Assume the market price i 7219 00 December 31, 2019 und P90 on July 1, 2020. What amount should be recognized as !oss on call option in 29207 a. 500,009 “288A OR. So,oes b. asa.00 oe oe sO; c.. 50,000 a. 0 4, Assume the merke! price is P110 on December 31, 2019 ancl P90 on July 1, 2020. What is the derivative liability on July 1, 20207 a. 500,000 BELANSE «1 13 DuLy Aw GMPrOH AM WOT an) DBuLATrOW, b, 250,000 ¢. 450,000 ’ a 0 D 6669 Scanned with CamScanner: I Cae oe batts Seen Vimar ane (Neb thay — —— “a — [Nb Ulument 7 i Pieith Hi tlie [P| i. — ‘ Lelie (ae wal b es | ein Ie i ca fale thing! a) tet) Scanned with CamScanner