An entity prepares financial statements to 31 December each year.

CIMA F3 Question Answer

An entity prepares financial statements to 31 December each year. The following data applies:

1 December 20X0

• The entity purchased some inventory for $400,000.

• In order to protect the inventory against adverse changes in fair value the entity entered into a futures contract to sell the inventory for a fixed price on 31 January 20X1.

• The entity designated this contract as a fair value hedge of the value of the inventory.

31 December 20X0

• The inventory had a fair value of $480,000 and the futures contract had a fair value of $75,000 (a financial liability).

What will be the impact on the statement of profit or loss and other comprehensive income for the year ended 31 December 20X0 in respect of the change in the value of the inventory and the futures contract?

A loss of $75,000 will be recognised in profit or loss.

A loss of $75,000 will be recognised in other comprehensive income.

A net gain of $5,000 will be recognised in profit or loss.

A net gain of $5,000 will be recognised in other comprehensive income.