Problem 7: On Oct 1, 2020, the company took delivery from a Bahrain firm of inventory costing 850,000 dinar. Payment is due on Jan 30, 2021. Concurrently the company paid P11,700 to acquire an at-the-money call option for 850,000 Bahrain dinar. The strike price is P9.40.

Market Price FV of the call option

Oct 1,2020 9.400 11,700

Dec 31, 2020 9.423 23,200

Jan 30, 2021 9.435 29,750

1. If changes in the time value will be excluded from the assessment of hedge effectiveness, what is the forex gain (loss) on the hedging instrument due to change in the ineffective portion on Dec 31, 2020?

a. 8,050

b. (8,050)

c. 19,550

d. (19,550)

1. If changes in the time value will be included in the assessment of hedge effectiveness, what is the forex gain (loss) in the hedging instrument in 2021?

a. 5,250

b. 7,650

c. (4,300)

d. 6,550

1. If split accounting is used in the assessment of hedge effectiveness, what is the forex gain (loss) on the option contract due to change in the intrinsic value on Dec 31, 2021?

a. 10,200

b. 5,100

c. 12,750

d. (7,500)