Vidhi Bank agreed on 15th April, 20X1 to sell USD ($) 60,000 to Satvik Limited in the future date (i.e.) on 31st March, 20X2 for a rate equal to…
CA Final · Financial Reporting · MTP · January 2026
Vidhi Bank agreed on 15th April, 20X1 to sell USD ($) 60,000 to Satvik Limited in the future date (i.e.) on 31st March, 20X2 for a rate equal to 82.40 per $. Vidhi Bank did not receive any amount upon entering into the agreement. Satvik Ltd. prepares its financial statements on quarterly basis. Additional Information: Forward rates and Spot rates: Forward rates as on Forward rates (1 $ = ₹) (for 31st March, 20X2 maturity) SPOT rates (1 $ = ₹) 15 th April, 20X1 82.40 82.00 30 th June, 20X1 82.10 82.40 30 th Sept, 20X1 82.15 82.25 31 st December, 20X1 82.50 82.20 31 st March, 20X2 82.00 82.05 Using the definition of derivative included in Ind AS 109 and following the principles of recognition and measurement as laid down in Ind AS 109, you are required to- (i) Analyse with reason whether the agreement to sell USD by Vidhi Bank contains a derivative. (ii) Pass the journal entries in the books of Satvik Limited for each quarter ended for financial year 20X1-20X2 till the date of actual purchase of USD.
Suggested Answer and Working Notes:
On evaluation of the contract in question, on the basis of definition of derivative, contract for purchase of USD ($) 60,000 from Vidhi Bank contains a derivative. The reason being - 1) The value of the contract, purchase of USD at fixed price, changes in response to the change in foreign exchange rate; 2) the contract requires zero initial investment; 3) The contract is settled at a future date that is 31st March 20X2. Journal entries in the books of Satvik Limited Date Particulars Particulars ₹ 15.4.20X1 No entry recognised since initial fair value of the forward contract is zero Nil Nil 30.6.20X1 Profit and loss account Dr. 18,000 To Derivative financial liability account 18,000 (Being mark to market loss on forward contract recorded) 30.9.20X1 Derivative financial liability account Dr. 3,000 To Profit and loss account 3,000 (Being partial reversal of mark to market loss on forward contract recorded) 31.12.20X1 Derivative financial liability account Dr. 15,000 Derivative financial asset account Dr. 6,000 To Profit and loss account 21,000 (Being profit on mark to market of forward contract booked as derivative financial asset and reversal of derivative financial liability recorded) 31.3.20X2 Cash (USD account) account Dr. 49,23,000 Profit and loss account Dr. 3,000 To Cash account 49,20,000 (USD 60,000 x 82) To Derivative financial asset account 6,000 (Being loss on settlement of forward contract recorded on actual purchase of USD) Working Notes: Sr. No. Date Working 1. 30.6.20X1 (82.40 – 82.10) x 60,000 = 18,000 2. 30.9.20X1 (82.15 – 82.10) x 60,000 = 3,000 3. 31.12.20X1 (82.50 – 82.15) x 60,000 = 21,000 4. 31.3.20X2 Cash (USD a/c) 60,000 x 82.05 = 49,23,000
Topics: Ind AS 109, General
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