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Hello sir
Could you please help me understand more this scenario. This is illustration 11 page 182 BPP workbook.
“On 1 July 20X6 Joules acquired 10000 ounces of a material which it held in its inventory. This cost $220 Per ounce, So a total of $2.2mil, Joules was concerned that the price of this inventory would fall, so on 1 july 20X6 he sold 10000 ounces in the future market for $215 per ounce for delivery on 30 June 20X7.
On 1 july 20X6 the conditions for hedge accounting were all met.
At 31 December 20X6 , The end of joules’ reporting period, the fair value of the inventory was $200 per ounce while the futures price for 30 June 20X7 delivery was $198 per ounce. On 30 June 20X7 The trader sold the inventory and closed out the futures position at the then price of $190 per ounce”In solution: the revenue from the sale of inventories were calculated as:10,000*190 at 30 Jun 20X7
My concern is that why selling price is $190 when revenue is recognised. Should it be $215 because Joules signed contract to sell at $215 on 1July X6?
Thanks a lot for your help.
LaindyTwo things are happening here.
The trader is selling goods at 190.
The trader has also entered into a futures contract with the bank. The futures contract will be settled at the difference in in futures price. It will be settle in cash.
The derivatives which are within the scope of IFRS 9 are not settled by delivery of the material; the trader is simply having a bet with the bank on the price of the material.
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