Transaction is fair value hedge

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Cooper Hill Ltd has a diversified portfolio of shares. On 01January 2019, the shares were worth $2,500,000. On this day the company entered into 10 futures contracts on the All Ordinaries Index futures in which it took a sell position. The All Ordinaries Index on 01 January 2019 was 2500 and the total price of futures contract is calculated as 2500 x $60 x 10 contracts = $1,500,000. A total deposit of $100,000 was paid to the broker on the futures contract and this deposit must be maintained at the same level.

On 5 February 2019, Cooper Hill Ltd decided to sell its portfolio of shares, close out its futures contract and collects its deposit from the broker. On this date, the market value of the share portfolio was $3,700,000 and the All Ordinaries Index was 2720 points.

Required

Calculate the gain or loss on share portfolio and SPI futures contracts.

Provide the journal entries to record the above transactions assuming that the above transaction is a fair value hedge.

Reference no: EM133239787

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