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On January 1, 2020, Cullumber Inc. agrees to buy 3 kg of gold at $33,000 per...

On January 1, 2020, Cullumber Inc. agrees to buy 3 kg of gold at $33,000 per kilogram from Golden Corp on April 1, 2020, but does not intend to take delivery of the gold. On the day that the contract was entered into, the fair value of this forward contract was zero. The fair value of the forward subsequently fluctuated as follows:

Date Fair Value of Forward Contract

January 20, 2020

 $453

February 6, 2020

 $133

February 28, 2020

 $378

March 14, 2020

 $750


On the settlement date, the spot price of gold is $34,000 per kilogram. Assume that Cullumber complies with IFRS.

Questions:

a) Prepare the journal entry for the day the forward contract was signed.

b )prepare the journal entries to recognize the changes in the fair value of the forward contract.

c) Prepare the journal entry that would be required if Cullumber settled the contract on a net basis on April 1, 2020

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Answer #1
Date Accounts Titles and Explanation Debit($) Credit($)

Jan 20, 2020

 Derivative - Financial Assets/Liabilities

466

453
     Gain 453
Fab 6, 2020 Loss 320
     Derivative - Financial Assets/Liabilities 320
Feb 28, 2020l Derivative - Financial Assets/Liabilities 245
     Gain 245
March 14, 2020 Derivative - Financial Assets/Liabilities 372
     Gain 372
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