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Chapter 20
Example 3.6
On 30 November 20X1 (contract date):
Derivative has no value as the fair value of the derivative is nil.
On 31 December 20X1 (reporting date):
Derivative will be accounted as a fair value through profit or loss financial asset.
Subsequent treatment is to revalue to fair value, gains or losses to profit or loss.
At 31 December 20X1 the fair value of the derivative is given as $360m –
$290m = $70m gain (by being in the contract Lucas would pay less for the oil,
therefore has made a saving. Hence a gain on the contract arises).
Dr Derivative (financial asset) $70m
Cr P/L (gain) $70m
On 31 March 20X2 (settlement):
Dr Derivative (financial asset) $107m
Cr P/L (gain) $107m
To record the further change in fair value ($467m – $290m = total gain of
$177m of which $70m has been recorded previously. $177m – $70m = $107m)
To record the settlement of the contract
As the derivative is traded at favourable terms, the total gain is received in cash
on settlement and the derivative is removed from the accounts.
Dr Bank $177m
Cr Derivative (to derecognise) $177m
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