QUESTION 2 FAR3 (Financial Instrument) Emas Kiara Bhd. (EKB) uses gold in the manufacturing of its specialised crafted jewelry and products. EKB anticipates that it will need to purchase 500 Ounces of gold in October 2018 for jewelry to be shipped for holiday season. However, if the price of gold increases, EKB's cost to produce jewelry will increase thus reducing its profit margin On 1 April 2018 EKB enters into a gold futures contract to hedge the risks of increased gold prices and designates this future contract as a cash flow hedge of the anticipated gold purchase. The notional amount of the contract is 500 ounces, and the terms of the contract give EKB the right and the obligation to purchase gold at a price of RM5,250 per ounce. The price will be good until the contract expires on 31 October 2018. The following data is available with respect to the price of the call options and gold inventory purchases: Date Spot price for October delivery of gold 1 April 2018 RM5,250 per ounce 30 June 2018 RM5,300 per ounce 30 September 2018 RM5,400 per ounce On 10 October 2018, EKB purchases 500 ounces of gold at RM5,400 per ounce. EKB sells jewellery containing gold purchased on 20 December 2018 for RM6,000,000. The cost for finished goods inventory is RM3,500,000 and EKSB settles the futures contract. On 1 October 2018 EKB enters into a forward contract to purchase 500,000 shares of Dana Jaya Bhd. (DJB) in an anticipation that the price of DJB shares will rise in the next six months. The prevailing price of DJB on the date of contract is RM5 per share. Other information regarding the forward contract is as follows: Maturity date 6- Month risk free rate Dividend yield of DJB DJB share price at 31 December 2018 1 April 2019 6 % annually 3% annually RM5.10 REQUIRED: (a) Prepare the journal entries to record the above transactions for Emas Kiara Bhd. (EKB) on the following dates. If no entry is needed, write "No Entry Necessary". (0) 1 April 2018. (ii) 30 June 2018. (iii) 30 September 2018. (iv) 10 October 2018 assuming EKB settle the futures contract. 20 December 2018, (b) Prepare a partial Statement of Financial Position for Emas Kiara Bhd. as at 30 June 2018 to reflect the above transactions. (c) Compute the forward price of the forward contract on 1 October 2018. (d) Compute the forward price of the forward contract at 31 December 2018 and prepare the journal entries. (e) Prepare a partial Statement of Profit and Loss and Other Comprehensive Income for Emas Kiara Bhd. for the period ended 31 December 2018 to reflect the above transactions
