Futures Contract

is a contract traded on an exchange that allows an entity to buy or sell a specified quantity of commodity or a
financial security at a specified prices on a specified future date.
d quantity of commodity or a
Fair value hedge: No hedging designation
On December 1, 2020, ABC Co. enters into a silver futures contract to purchase 1,000 ounces of silver on February 1, 2021 fo
per ounce. The broker requires an initial margin deposit of P20,000. The quoted prices per ounce of silver are as follows:

Dec. 1, 2020 Dec. 31, 2020 Feb. 1, 2021

200 190 185

Journal entries:
Hedged
Hedged item - Accounts receivable Futures con
Dec. 1, 2020 Dec. 1, 2020
Deposit with broker

to record the initial margin deposit

Dec. 31, 2020 Dec. 31, 2020
Loss on futures contract

to record the value of the derivativ

underlying multiplied by the notion
Feb. 1, 2021 Feb. 1, 2021
Loss on futures contract
(190 - 185) x 1,000
Futures contract (liability)
Cash - local currency

to recognize loss on the change in t

comtract and to record the net cas
 of silver on February 1, 2021 for P200
nce of silver are as follows:

Hedged instrument -
Futures contract (Derivative)

posit with broker 20,000

Cash 20,000
record the initial margin deposit with the broker

s on futures contract 10,000

Futures contract (liability) 10,000
(200 - 190) X 1,000
record the value of the derivative computed as change in the
derlying multiplied by the notional amount.

s on futures contract 5,000

0 - 185) x 1,000
ures contract (liability) 10,000
sh - local currency 5,000
Deposit with broker 20,000
recognize loss on the change in the fair value of the future
mtract and to record the net cash settlement of the future contract.
Fair value hedge: Recognized asset measured at fair value
ABC Co. is a commodity trader. On December 1, 2020, ABC Co. carries in its inventory 100 troy ounces of gold valued at P1,20
(or P12,000 per troy ounce). ABC Co. measures its inventory of gold at fair value less costs to sell through profit or loss.

To protect the fair value of its inventory against a potential decline in prices, ABC Co. enters into a "short"
futures contract on December 1, 2020 to sell 100 troy ounces of gold at P12,100 per trot ounce on February 1, 2020 (the exp
of sale of the inventory). The futures contract requires an initial margin deposit of P96,000.

Dec. 1, 2020 Dec. 31, 2020 Feb. 1, 2021

Spot price 12,000 12,250 11,800
Futures price 12,100 12,300 11,800

Hedged item - Inventory Fut

Dec. 1, 2020 Dec. 1, 2020
Deposit with broker

to record the initial margin d

Dec. 31, 2020 Dec. 31, 2020
Inventory 25,000 Loss on futures contract
Gain on fair value change 25,000
to recognize the change in fair value less costs to sell of the gold
Inventory to recognize the change in th
Feb 1, 2021 Feb 1, 2021
Loss on fair value change 45,000 Futures contract (liability)
(12,250 - 11,800) x 100
Inventory 45,000
to recognize the change in the fair value less costs to sell of the gold to recognize the change in th
inventory.

Feb 1, 2021 Feb 1, 2021

Cash 1,180,000 Cash
Sale 1,180,000 [(12.1K - 11.8K) x 100] + 96K
(11,800 spot price x 100)

Cost of goods sold 1,180,000

Inventory 1,180,000 to record the net cash settle
(1.2M + 25K -45K)
to recognize the sale of gold inventory.
s of gold valued at P1,200,000
ugh profit or loss.

ebruary 1, 2020 (the expected date

Hedged instrument -
Futures contract (Derivative)

osit with broker 96,000

Cash 96,000
ecord the initial margin deposit with the broker

on futures contract 20,000

Futures contract (liability) 20,000
(12,300 - 12,100) x 100
ecognize the change in the fair value of the futures contract

ures contract (liability) 50,000

Gain on futures contract 50,000
(12,300 - 11,800) x 100
ecognize the change in the fair value of the futures contract

.1K - 11.8K) x 100] + 96K 126,000

Futures contract (asset) 30,000
(50K asset - 20K liability)
Deposit with broker 96,000
ecord the net cash settlement of the futures contract.