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Derivative

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › Derivative

  • This topic has 1 reply, 2 voices, and was last updated 4 years ago by Stephen Widberg.
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  • June 30, 2021 at 6:32 am #626670
    joynow
    Member
    • Topics: 42
    • Replies: 38
    • ☆☆

    Hi,Sir for past year question from Mar 2019 Q3 a) II)

    Question

    The directors of Hudson wish to recognise a material deferred tax asset in relation to $250 million of unused trading losses which have accumulated as at 31 December 20X2. Hudson has budgeted profits for $80 million for the year-ended 31 December 20X3. The directors have forecast that profits will grow by 20% each year for the next four years.The market is currently depressed and sales orders are at a lower level for the first quarter of 20X3 than they were forthe same period in any of the previous five years. Hudson operates under a tax jurisdiction which allows for trading losses to be only carried forward for a maximum of two years.

    Ans: At the date of the modification of the contract to the functional currency of Crypto, there is a significant change to the contract which will trigger a reassessment of its position under IFRS 9. As the contract no longer has a non-closely related embedded derivative, the entire arrangement will be accounted for prospectively as an executory contract whichis outside the scope of IFRS 9. The embedded derivative will be derecognised and it is likely that Crypto will have to paythe counterparty 2 million euros in compensation.

    My questions are why there are no longer has a non-closely related embedded derivative after modification and hybrid contract is measured at what as derivative is measured at FVTPL?

    June 30, 2021 at 5:21 pm #626717
    Stephen Widberg
    Keymaster
    • Topics: 16
    • Replies: 3428
    • ☆☆☆☆☆

    I am sorry – there is no point in cutting and pasting entire exam questions.

    You need to phrase the question in your own words – probably no more than 20.

    Finally – there is a house limit of 3 questions.

    But I will say for this question:

    Original contract = settlement not in expected currency = embedded derivative

    New contract = settlement in expected currency = no derivative (Remember that derivatives settled by delivery of a commodity are outside the scope of IFRS 9 – they are termed ‘executory).

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