David Ltd acquired a parcel of 50 000 call options in Goliath Ltd on 1 November 2012.The price of the options was $1.50 each and they may be exercised any time prior to 30 June 2015 at exercise price of $30.On the same date the market price for Goliath Ltd shares is $25.On David Ltd's balance date - 30 June 2013 - the company is still holding the options.The market price of the options at that time was $1.80 each and the share price is $27. What is the financial effect of the above transactions on David Ltd's statement of comprehensive income for the year ending 30 June 2013?
A) Increase by $15 000
B) Decrease by $15 000
C) Increase by $100 000
D) Decrease by $100 000

Question

Quizplus · Accepted Answer

The financial effect on David Ltd's statement of comprehensive income for the year ending 30 June 2013 is an increase of $15,000. This is calculated by the increase in the market price of the options from $1.50 to $1.80, which is a $0.30 increase per option. With 50,000 options, this results in a total increase of $15,000 (50,000 options * $0.30 increase per option).

David Ltd Acquired a Parcel of 50 000 Call Options