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In answer to this (the above) question, the examiner wrote “The contract will be accounted for as a derivative and should be valued at fair value (asset or liability at fair value). Initially the contract should be valued at nil as under the terms of a commercial contract the value of 2,500 shares should equate to the value of 350 tonnes of wheat”
I understand why the contract is a derivative. But why should it be initiall measured at nil value? And what’s the whole thing of being equal i.e. the 2500 being equal to the 350 tonnes? I really don’t get it. Please explain.
Also, on a separate matter, for P2 section B question, (question 2 and 3) is the best approach to read past exam answers and then understand and learn from them, as I’m doing right now?
@Keyboard did you want to tell me something? What’s the matter? What does a blank post from a moderator mean?
Gabriel, I think Keyboard’s post could have been made with the intention of being ironic.
Now, your question …… try as I might, I cannot find the quotation you give from the examiner in his answer to question 2 (a) from the December 2010 exam.
Maybe it’s just me or possibly my failing eyesight. Sorry
In answer to the second part of your post, I personally would find it hard to talk you out of adopting this approach. It may not be easy and it may not cover all that there is to cover. However, the alternative of opening a study text and starting at page 1 and grafting your way through 800 pages is, in my simple mind, a non-starter.
Obviously, there are students who actually do manage to complete this marathon but let me assure you – it would never suit my personality.
There are students (you can see from the various posts on this site) that have the luxury of being full-time students at colleges where studying is over a period of months with the distraction of “sports afternoon” on Wednesdays but are otherwise able to study 6 days a week should they choose to.
I assume that this does not apply to you so just keep going with the revision kit questions and answers!
Dear P2 tutor,
Yes, you’ve guessed right, I’m just like you, in the sense that it doesn’t fit my personality to open a study text and face hours of boredom! I wonder how people manage to actually read the study text when it’s so boring and long. It’s dull, I literally fall asleep reading the study text for P2 just because there is so much high level language and boring accounting entries and definitions. I prefer to understand the standards practically, and the best way I see to do this is to have a case study question from the past papers and go through them. This aids understanding much quicker.
But I am surprised why you say that no all is covered in the past papers. I mean if we do past papers from Dec 2007 – June 2014 then isn’t there a high chance that we will touch each and every syllabus area?
Now, regarding the quotation, I can help you find it. If you once again look at the Dec 2010 question 2 (a) answer you will see a list of bullet points that detail out what constitutes net settlement. It is immediately after this list of bullet points that you’ll see my quotation. If you can’t still find it then I can reproduce the whole of the examiner’s answer to that question here.
I really like your lectures. I prefer them over reading because reading, according to me, is dull and boring so I keep going through your lectures and working through the practice questions after I’ve watched the lecture. I believe doing past papers is the only real way to pass.
Keep up the good work.
IAS 41 isn’t covered in past exam questions – and it’s being brought back into the syllabus with effect from December 2014.
As early as mid-July (today) I’m tipping IAS 41 as a likely exam topic for December 2014
As a derivative, the contract should be valued at fair value – ie what’s the cost of the contract in real terms. The answer is – there is no cost. The value of 2,500 shares is, at the date of entering the contract, the same as the value of the 350 tonnes of wheat. So, when settlement date arrives and the cash is paid, and provided share values and wheat values have not changed, there will be an outflow of cash and an increase in wheat equal in value to that cash outflow.
But, at each subsequent year end, the value of wheat will have changed and the value of Margie’s shares will have changed so a comparison of those two values will give rise to a difference and that will then be reflected.
Better?
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