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Prepare the journal entries for Gold Ltd

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Reference no: EM132996865

Question - Gold Ltd enters into a call option contract with Rust Ltd that gives Gold 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)

Required -

(a) Prepare the journal entries for Gold Ltd as the call option holder.

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

(c) Explain how the following items would be measured subsequent to initial recognition in accordance with AASB 9 Financial Instruments:

i. An entity makes a loan to collect the contractual cash flows. Receipts of principal and interest occur on due dates. The loan is unsecured.

ii. A long-term investment in a share portfolio.

An ASX SPI 200 Futures contract with a positive fair value.

Reference no: EM132996865

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