CFA Practice Question

There are 89 practice questions for this study session.

CFA Practice Question

On June 20, 2015 a U.S. firm, which was expecting to receive CA$1 million in one year, bought a one-year futures contract to sell CA$1 million. At the end of the fiscal year (Dec 30, 2015), due to currency exchange fluctuations, the futures contract is now worth US$100,000. The US$100,000 gain should be:
A. reported in the income statement.
B. reported in shareholders' equity as part of other comprehensive income.
C. not reported as there should be an equivalent loss of US$100,000 from the expected CA$1 million cash flow.
Explanation: Any unrealized gains or losses from the derivative bypass the income statement and are reported in shareholders' equity.

User Contributed Comments 4

User Comment
mishis So on June 20 2016, the CF Hedge the realized gain would then be recorded in Income Statement as part of earnings.
Profache The gain is due to currency translation, which bypass the income statement.
Stoibayev come on guys.... this is so not correct. The currency fluctuation are reflected in PL by default for all derivative instruments (subject to one exception), unless an entity explicitly chooses to use Hedge Accounting. Even then, only effective portion is reflected in OCI...
Dilaraj First, they don't mention if the income was recognised. if the entity was expecting to receive CA, but the service was not rendered (or the product was not sold) the income was not recognised and you can't judge whether there would be a realized gain/ loss. Then there is a difference in IFRS and GAAP recording of FX gains/losses. They don't say under what accounting rules they report.
You need to log in first to add your comment.