Date of Contract Reporting Date Date of Settlement

date we entered into derivatives date of Financial Statements agreed future date

illustration 1
December 15 December 31 January 15
No entry
Underlying Asset = Yen Loss on FC 15,000 Cash (Pesos)
Notional Amount = 1,000,000 Yen Forward Contract Payable 15,000 Cash (Yen)
Gain on FC
Agreed/Strike Price = 0.47
Total agreed price = P470,000 FC Payable
Gain on FC

Zero Value Forward rate - 12/31 = P485,000 Spot rate = P460,000

Forward rate - 12/15 = P470,000 Forward rate = P470,000
Loss 15,000 Gain P10,000
Reveral of FC Payable P15,000
Total gain P25,000

Spot rate = 460,000

Forward rate -12/31 = 485,000
total gain of P25,000

Date of Contract Reporting Date Date of Settlement

Supplier
Entity
Bank (Broker)

December 1 December 31 February 1

Forward rate Agreed rate by the bank.
Spot rate Exchange rate in the market

470,000 Cash (Pesos) 470,000

460,000 FC Payable 15,000
10,000 Cash (Yen) 460,000
Gain on FC 25,000
15,000
15,000
Underlying Asset = Silver
Notional Amount = 1,000 ounce
Agreed/Strike Price = (1,000 x 200) = P200,000

Entries for Derivative Contract

Broker's Deposit 20,000 Fair Value - 12/31 (190x1,000) = 190,000 Fair Value - 2/1 (185x1000) P185,000
Cash 20,000 Strike Price/Agreed Bank = 200,000 Fair Value -12/31 (190x1000) P190,000
Loss P10,000 Additional Loss of P5,000

Loss on FC 10,000 Agreed Price P200,000

Future contract payable 10,000 Pay the supplier 185,000
total loss 15,000
10,000 reported Dec 31, 2021
5,000 reported on Feb 1, 2022

Loss on FC 5,000
Future Contract Payable 5,000

FC payable 15,000
Broker's Deposit 15,000
Cash 5,000
Entry to acquire the silver Broker's Deposit 15,000
Silver 185,000
Cash 185,000

December 1 December 31 February 1

Agreed Price 200,000 Fair Value = 190,000 Fair Value = 205,000

Broker Deposit 20,000 Loss on FC 10,000 FV 205,000

Cash 20,000 FC payable 10,000 Agreed 200,000
Derivative asset 5,000
 Cash 5,000
FC Payable 10,000
Loss on FC 5,000
Broker Deposit 20,000

5,000
 FC Receivable 5,000
Gain on FC 5,000

FC payable 10,000
Gain on FC 10,000

Cash 5,000
FC Receivable 5,000

Cash 20,000
Broker Deposit 20,000

Silver 205,000
Cash 205,000

Date of Contract Reporting Date Date of Settlement

FV = Purchase Price = 7,500 FV of put option = 5,000 FV of option = 8,000

Decrease in FV = 2,500 Increase 3,000
Dec 15 Dec 31 Jan 15

Put option 7,500 Loss on Put Option 2,500 Cash

Cash 7,500 Put Option 2,500 Cash (Y)
Gain on put option
Underlying Asset - Yen Carrying Amount - 5,000
Notional Amount - 1,000,000 Loss on put option
Strike price - P470,000 Put option
Net gain

Strike price - P470,000

Market Price - P460,000
Cash 25,000
FC payable 10,000
Broker Deposit 20,000
FC gain 15,000

200,000 5,000

470,000 Cash 470,000

460,000 Cash (Y) 460,000
10,000 Put option 5,000
Gain on Put option 5,000
5,000
5,000
(10,000 - 5,000) 5,000
Date of Contract Reporting Date Date of Settlement

FV of options = Intrinsic Value + Time Value

Intrinsic Value = 0 Time value = 0

FV = TV FV = Intrinsic Value

Intrinsic Value Intrinsic Value

Strike /Agreed Price XXX
Less: Market Value of underlying asset XXX
Intrinsic value XXX

April 1 June 30 July 1

Underlying Asset = Stocks
Notional Amount = 1,000 shares
Strike Price = (100 x 1,000) P100,000 Strike Price = (100 x 1,000) P100,000
Market price = (106 x 1,000) P106,000
Call Option 600 Call option 5,800
Cash 600 Gain on call option 5,800 Investment in trading securities
Cash
FV = 600 BS = Call option 6,400
IS = Gain on call option 5,800 Cash
Intrinsic Value 0 Intrinsic Value 6,000 Loss on call option
Time Value 600 Time Value 400 Call option
Fair Value 600 Fair Value 6,400

Intrinsic Value
Strike /Agreed Price 100
Less: Market Value of underlying asset 106
Intrinsic value 6
 6,000

100,000
100,000

6,000
400
6,400
 x no. of shares 1,000
Total Intrinsic value 6,000

Jan 1 20x1 Dec 31, 20x1 Dec 31, 20x2

Receive variable interest Jan 1, 20x1 Jan 1 20x2

Pay fixed interest 8% 8% 10%

Underlying asset = Interest Rate

Notional Amount = 8% Fixed payment 80,000
Agree price = Interest Payment Expected payment 10%x1M 100,000
80,000 Derivative Asset 20,000
PV of 1 for 10% n=1 0.90909
Creditor (Bank A) PV of Derivative asset 18,182
Loans Payable 1,000,000
Interest payment based on rate at the beginning of year

Bank B (Derivative Contract) Interest rate swap receivable 18,182 Cash 20,000
8% Fixed Gain on IRS 18,182 IRS Receivable 18,182
Gain on IRS 1,818
Interest expense 80,000
Cash 80,000 Interest expense 100,000
Cash 100,000

Jan 1 20x1 Dec 31, 20x1 Dec 31, 20x2

Receive variable interest Jan 1, 20x1 9% Jan 1, 20x2 8%

Pay fixed interest 9% Fixed Interest Payment 90,000
Expected payment (8% x1M) 80,000
Bank A (Creditor) Loss on IRS 10,000 IRS Payable 10,000
 80,000 20,000

Dec 31, 20x3

Jan 1, 20x3 12%

Cash 30,000
 PV of Ordinary Annuity n=2 r=8% 1.783265 Cash 10,000
PV of Loss 17,833
Interest expense 80,000
Bank B (Derivative Contract) Loss on IRS 17,833 Cash 80,000
Interest rate swap payable 17,833

Interest expense 90,000 Fixed Interest Payment 90,000

Cash 90,000 Expected payment (12% x1M) 120,000
Gain 30,000
PV of 1 n=1 rate= 12% 0.892857
PV of gain 26,786

Remaining IRS payable (17,833 -10,000) 7,833

IRS receivable 26,786

IRS payable 7,833
gain on IRS 34,619

Jan 1 Dec 31, 20x1 Dec 31, 20x2

Received fixed 10%
Pay Variable Jan 1, 20x1 10% Jan 1, 20x2 12%

Interest expense 100,000 IRS payable 20,000

Cash 100,000 Cash 20,000

Interest expense 100,000

Received interest 100,000 Cash 100,000
Payment 120,000
Loss 20,000 Received interest 100,000
PV of ordinary annuity 1.69005 Payment 140,000
PV of IRS Payable 33,801 Loss 40,000
PV of 1 n1 r14 0.877192982
Loss on IRS 33,801 PV of IRS payable 35,088
 IRS Receivable 26,786
Gain on IRS 3,214

Interest expense 120,000

Cash 120,000

90,000
30,000
120,000

26,786

Dec 31, 20x3

Jan 1, 20x3 14%

IRS Payable 35,088

Loss on IRS 4,912
Cash 40,000

Interest expense 100,000

Cash 100,000

140,000
14%
IRS Payable 33,801

Beg. 33,801
Less: Settlement 20,000
Remaining liab 13,801
Adjustment 21,287
IRS payable 35,088

Loss on IRS 21,287

IRS payable 21,287