On september 30, we enter into a futures contract to hedge the value

 

HEDGING TRANSACTIONS

On September 30, we enter into a futures contract to hedge the value of gold which we will use in our manufacturing process and report on our balance sheet at $500,000. On December 31, the market value of gold has declined to $450,000. However, the futures contract that we had purchased increased in value by $45,000.

Submission Requirements:

Prepare a PowerPoint slide presentation illustrating the following:

  • The basics of a hedge instrument
  • Recognition criteria under a GAAP versus IFRS basis
  • How much net profit or loss will we recognize?
  • How any profit or loss will be recognized under a GAAP basis.

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