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Derivatives and Initial Recognition

Forums › ACCA Forums › ACCA SBR Strategic Business Reporting Forums › Derivatives and Initial Recognition

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  • November 21, 2022 at 7:04 pm #671995
    Jonty
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    What would be the journal entry for recording a derivative at initial recognition?

    for example – From Kaplan SBR study text pg 290 TYU 18

    We buy an equity instrument on 1/1/x1 at its FV of $900,000. This is designated as FVOCI.
    So initial journal here would be
    DR EQ Invest 900,000
    CR Bank 900,000

    We are then worried about the investment losing value. So on 30/9/x1, we enter into a futures contract to sell the shares on 1/4/x2 for 900,000
    What would be this Journal entry to record the futures contract?

    Follow on then – at Reporting Date 31/12/x1, the FV of the equity instrument has fallen to 800,000 and the FV of the futures has increased by 90,000.
    So we need to reduce the Equity by 100,000
    DR OCI 100,000
    CR EQ Invest 100,000
    and then
    DR Futures Deriv 90000
    CR OCI 90000

    At Report Date we take £800,000 through to SFP as part of the EQ Invest.
    but what about the Futures?

    Is the 90k DR on Futures, the first transaction and will we show £90k in the SFP?
    or
    Will there be a balance already on Futures Deriv that we are increasing by 90k? thereby showing £990k in the SFP?

    or something else?

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