TUNKU PUTERI INTAN SAFINAZ SCHOOL OF ACCOUNTANCY

BKAR 3033 FINANCIAL ACCOUNTING AND REPORTING III

FIRST SEMESTER 2020/2021 (201)

COMPREHENSIVE CASE 2

GROUP : H/3

PREPARED FOR :

PROF. MADYA DR. NORIAH BT CHE ADAM

PREPARED BY :

NO. NAME MATRIC NUMBER

1 Nik Nurin Athirah Binti Nik Faizul 273031

2 Idznin Alish Binti Muhammad Azirul Aridi 273033

3 Phisal A/L Ai Plem 273147

4 Nurdini Sofia binti Saeman 273176

5 Piraween A/L Balakrisnan 273489

DATE OF SUBMISSION : 9 DECEMBER 2020

(a) Provide a brief overview of financial reporting requirement for hedge
accounting as prescribed by MFRS 9 Financial Instruments.
A derivative measured at fair value through profit or loss may be designated as a
hedging instrument, except for some written options. A non-derivative financial asset
or a non-derivative financial liability measured at fair value through profit or loss may
be designated as a hedging instrument unless it is a financial liability designated as at
fair value through profit or loss for which the amount of its change in fair value that is
attributable to changes in the credit risk of that liability is presented in other
comprehensive income in accordance with paragraph 5.7.7. For a hedge of foreign
currency risk, the foreign currency risk component of a non-derivative financial asset
or a non-derivative financial liability may be designated as a hedging instrument
provided that it is not an investment in an equity instrument for which an entity has
elected to present changes in fair value in other comprehensive income in accordance
with paragraph 5.7.5. For hedge accounting purposes, only contracts with a party
external to the reporting entity can be designated as hedging instruments.

A qualifying instrument must be designated in its entirety as a hedging instrument.

The only exceptions permitted are:

(a) separating the intrinsic value and time value of an option contract and
designating as the hedging instrument only the change in intrinsic value of
an option and not the change in its time value.

(b) separating the forward element and the spot element of a forward contract
and designating as the hedging instrument only the change in the value of
the spot element of a forward contract and not the forward element;
similarly, the foreign currency basis spread may be separated and excluded
from the designation of a financial instrument as the hedging instrument.

(c) a proportion of the entire hedging instrument, such as 50% of the nominal
amount, may be designated as the hedging instrument in a hedging
relationship. However, a hedging instrument may not be designated for a
part of its change in fair value that results from only a portion of the time
period during which the hedging instrument remains outstanding.

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An entity may view in combination, and jointly designate as the hedging instrument,
any combination of the following (including those circumstances in which the risk or
risks arising from some hedging instruments offset those arising from others):

(d) derivatives or a proportion of them.

(e) non-derivatives or a proportion of them.

However, a derivative instrument that combines a written option and a purchased
option (for example, an interest rate collar) does not qualify as a hedging instrument if
it is, in effect, a net written option at the date of designation (unless it qualifies in
accordance with paragraph B6.2.4). Similarly, two or more instruments (or
proportions of them) may be jointly designated as the hedging instrument only if, in
combination, they are not, in effect, a net written option at the date of designation
(unless it qualifies in accordance with paragraph B6.2.4).

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 (b) i) Determine the information (i.e. asset/liability, revenue/expense and disclosure)
to be reported in the financial statements for the year ended 31 December 2019 with
regard to the use of derivative instrument.
The balance of cash, the cash flow hedge of the hedging factor and the cash flow hedge
of the time value are the details to be recorded in the financial statements. The cash balance will
be reported as a current asset in the Statement of Financial Position after purchasing the call
option on 31 December 2019. In the meantime, both the hedging part cash flow hedge reserve
and the time value cash flow hedge reserve will be reported in the Statement of Profit and Loss
and Other Comprehensive Income (OCI).
Elements such as classes of financial instruments, significance of financial instruments
in Statement of Financial Position, significance of financial instruments in Statement of
Comprehensive Income, reclassification, de-recognition, quantitative and sensitivity disclosures
on the risks must be included in the disclosures requirement. Interest rate risks, credit risks,
market risks and price risks need to be included too.

BINA AUTO
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2019
ITEM TO DISCLOSURE RM RM
Other comprehensive :
Comprehensive gain :
Gain on cash flow hedge reserve - hedging element 278,500
278,500
Comprehensive loss :
Loss on cash flow hedge reserve- time value element 114,497
Loss on foreign currency call option 164,003
(278,500)
Net other comprehensive income 0

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 BINA AUTO
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2019
ITEM TO DISCLOSURE RM RM
Current asset :
Cash (154,725)
Non-current assets :
Derivative financial assets 154,725
0
Equity :
Cash flow hedge reserve - hedging element (114,497)
Cash flow hedge reserve- time value element 278,500
Foreign currency call option (164,003)
0

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 ii) Show the necessary journal entries for 2019 and 2020.
Date Account tittle Debit (RM) Credit (RM)
2019 Foreign Currency Call Option 154,725
Jan 1 Cash 154,725
June 30 Foreign currency call option 164,003
(RM318,728-RM154,725)
Cash flow hedge reserve (OCI)- time value 114,497
element
Cash flow hedge reserve (OCI)- hedging
element 278,500
(RM0.6746-RM0.6189) x CNY5,000,000
2020 Purchases 2,849,000
June 30 Account payable 2,849,000
RM0.5698 x CNY5,000,000
July 31 Account payable 57,000
Gain on foreign exchange 57,000
(RM0.5584-RM0.5698) x CNY5,000,000

Account payable 2,792,000

Cash 2,792,000
RM0.5584 x CNY5,000,000

Reclassification adjustment- P&L 114,497

Cash flow hedge reserve (OCI)- time value 114,497
element

Cash flow hedge reserve (OCI)- hedging element 278,500

Reclassification adjustment- P&L 278,500

Loss on foreign currency call option

Foreign currency call option 318,728
(RM164,003+RM154,725) 318,728
Nov 30 Cost of goods sold (P&L) 2,792,000
Inventory 2,792,000