Each of the statements below is either true (T) or false (F):

1. Information: On 1 September 2020, Ashley Ltd has acquired 10,000 shares in Xero Ltd at a price of $30 each. The transaction costs for brokerage was $5,000. The closing market price of Xero Ltd shares on 31 August 2021 (Balance date) was $34 each. The Investment in Xero Ltd is not held for trading, and Ashley Ltd has made the election to account for its investment in Xero shares at Fair value through OCI.

Statement: Therefore, on 31 August 2021, there is a $40,000 gain on OCI account for the fair value increase in Investment in Xero Ltd.

2. Statement: To qualify for hedge accounting, the hedging relationship cannot have hedge ineffective portion.
3. Information: A NZ exporter has bought a put option contract to fair value hedge its accounts receivable US$50,000. The exercise rate in the option is 1$NZ = US$0.65 with a contract amount of US$50,000. On the settlement date, the spot exchange rate is 0.6.

Statement: Therefore, the exporter will exercise the option as the option value is worth NZ$6,410 on the settlement date.

4. Statement: A weaker NZ$ is good for NZ exporters as the foreign currency denominated accounts receivable will be converted into a higher NZ$ value.
5. Information: A company issued some convertible notes, which can be converted into a fixed number of shares at the end of the contract period.

Statement: Therefore, the convertible notes would be treated as a compound financial instrument with both liability and equity components.

6. Information: A NZ importer recognised an accounts payable HK$500,000, to be settled one month later. The spot exchange rate was 5 (i.e., 1$NZ = HK$5). At the same time, the importer entered into a one-month forward contract to fair value hedge the exchange rate risk associated with the accounts payable. The forward contract has a contract amount of HK$500,000 and a forward rate of 4.8. On the settlement date, the spot exchange rate is 5.3. Statement: Therefore, the fair value of the forward contract on the settlement date will be net forward asset NZ$9,827.
7. Information: On 1 January 2020, Marco Ltd bought some corporate bonds for cash consideration of $900,508, including transaction costs, with a contract term of three years. The bonds have a principal amount of $1,000,000 and have a coupon rate of 6% p.a., payable on the balance date 31 December each year. The effective interest rate is 10% p.a. Marco Ltd has classified the corporate bonds as subsequent measurement at amortised cost.

Statement: Therefore, on 31 December 2021, Marco Ltd will recognise $60,000 as interest income in the Income Statement.

Item	Statement
(a)	Therefore, on 31 August 2021, there is a $40,000 gain on OCI account for the fair value increase in Investment in Xero Ltd.
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(b)	To qualify for hedge accounting, the hedging relationship cannot have hedge ineffective portion.
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Item	Statement
(c)	Therefore, the exporter will exercise the option as the option value is worth NZ$6,410 on the settlement date.
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(d)	A weaker NZ$ is good for NZ exporters as the foreign currency denominated accounts receivable will be converted into a higher NZ$ value.
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(e)	Therefore, the convertible notes would be treated as a compound financial instrument with both liability and equity components.
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Item	Statement	T / F
(f)	Therefore, the fair value of the forward contract on the settlement date will be net forward asset NZ$9,827.
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(g)	Therefore, on 31 December 2021, Marco Ltd will recognise $60,000 as interest income in the Income Statement.
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