Financial Instruments - 14 Marks

On 30 April 2021, Weasley Ltd bought 150,000 exchange-traded call options in Krum Ltd with a maturity date of 30 October 2021 and an exercise price of $29 per option. The purchase price was $1.80 per option. On 30 June 2021, the fair value of the options was $2.00 per option. On 30 October 2021, the market price per share was $27.

This question has 4 parts: Part (a) (1 Mark); Part (b) (2 Marks); Part (c) (6 Marks) and Part (d) (5 Marks).

Part (a) Should Weasley Ltd exercise their options on 30 October 2021? Answer either Yes or No. 1 Mark

Part (b) Briefly explain your answer from part (a). Why would Weasley Ltd choose to/not to exercise their options on 30 October 2021? 2 Marks

Part(c) Provide the accounting journal entries for Weasley Ltd in relation to the share options. Show your calculations. 6 Marks

Enter your answers into the Journal Template below. Show workings at the bottom of the Journal where provided:

Date	Account	Debit	Credit

Show workings here:

Part (d) On 1 June 2021, Weasley Ltd purchased another investment (a financial asset) and incurred a direct cost associated with the investments purchase. Describe the two potential accounting treatments available to Weasley Ltd upon initial recognition of the investment and explain how one determines which of these two accounting treatments Weasley Ltd should use.

5 Marks