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Financial instruments
Example 3.6
Lucas entered into a forward contract on 30 November 20X1 to buy oil for
$290m on 31 March 20X2. The contract was entered into on 30 November
20X1 at nil cost.
Lucas does not plan to take delivery of the oil but to settle the contract net in
cash, i.e. Lucas hopes to generate a profit from short term price fluctuations.
The year end is 31 December 20X1 and the price of oil has moved so that
making the equivalent purchase on 31 December 20X1 would require Lucas to
spend $360m.
On 31 March 20X2, the value of the underlying item has changed such that the
equivalent purchase of oil would now cost $467m.
Required:
Prepare journal entries to record the above transaction.
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