On September 30, we enter into a futures contract to hedge the value of gold which we will use in our manufacturing process and report on our balance sheet at $500,000. On December 31, the market value of gold has declined to $450,000. However, the futures contract that we had purchased increased in value by $45,000.
Prepare a PowerPoint slide presentation illustrating the following:
- The basics of a hedge instrument
- Recognition criteria under a GAAP versus IFRS basis
- How much net profit or loss will we recognize?
- How any profit or loss will be recognized under a GAAP basis.