Accounting treatment of futures hedging

The "Interim Provisions on the Accounting Treatment of Enterprise Commodity Futures Business" issued by the Ministry of Finance in 1997 (Financial Accounting No. 51, 1997), and the " The "Accounting System of a Joint Stock Company" (which has been replaced by the "Enterprise Accounting System") and the "Regulations on the Accounting Treatment of Commodity Futures Business" (hereinafter the above two documents are collectively referred to as the "Regulations"), stipulates the accounting treatment of futures business. However, the "Enterprise Accounting System", "Financial Enterprise Accounting System", and "Small Enterprise Accounting System" implemented in recent years do not involve futures business. Moreover, the author has not seen any relevant information about futures business from the Ministry of Finance since February 1998. The issuance of normative documents on accounting processing is in sharp contrast to the gradual development and maturity of the futures market in recent years. Therefore, current research on the accounting treatment of futures hedging must still be based on the above-mentioned "Regulations".

1. Subject setting and report presentation

(1) Subjects added by the "Regulations"

The "Regulations" require that all enterprises with commodity futures business, The following general ledger accounts and detailed accounts should be added:

1. "Futures Margin" account, accounting enterprises deposit and add to futures exchanges (hereinafter referred to as exchanges) or futures brokerage institutions (hereinafter referred to as brokerages) The margin used to handle futures business.

2. The "seat fees receivable" account accounts for the seat occupation fees paid by enterprises to obtain seats other than basic seats.

3. The "Futures Profit and Loss" account accounts for the handling fees, liquidation profits and losses, and membership changes incurred by the enterprise in handling futures business.

Futures annual membership fees and futures business violations and breach of contract fines should be reflected in separate detailed accounts in the "administrative expenses" and "non-operating expenses" subjects, and shall not be included in futures profits and losses.

4. Set the detailed account "Futures Membership Investment" in the "Long-term Equity Investment" account. Account for investment deposits and investment returns; when the amount deposited is inconsistent with the amount that can be returned, the difference will be recorded in the "Futures Profit and Loss" account.

(2) Accounts that still need to be added

1. The "futures profit and loss to be confirmed" account accounts for the floating profit and loss of positions that occur as notified by the exchange or brokerage.

2. "Buy futures contract", "Sell futures contract", and "Futures settlement" accounts. According to the "Regulations", the number (lots), underlying quantity, and amount of futures contracts purchased or sold by an enterprise are not calculated in the account. Doing so will have a negative impact on the internal control of futures. To this end, enterprises can add the above three subjects to calculate the quantity, type and initial transaction price of futures contracts bought and sold.

(3) Statement presentation

1. Balance sheet:

(1) Set "futures margin" on the "other receivables" item and "seat fees receivable" items are filled in based on the ending balances of two accounts with the same name.

(2) List the floating profit and loss of position contracts in the "Other current liabilities" item.

(3) In the notes to the statement, the contents and amounts of futures membership investments, floating profits and losses of position contracts, etc. should also be disclosed.

(4) Enterprises that set up accounts for buying and selling futures contracts and futures settlement should offset these accounts when preparing the balance sheet. They should not be reflected in the statement, but should be included in the notes to the statement. Detailed disclosure of the type, quantity and initial transaction amount of open positions.

2. Income statement (profit and loss statement): Set the "futures income" item under the "investment income" item.

3. Cash flow statement: Cash receipts and payments from futures business should be reported as cash flows from investing activities.

Hedging - Case

(1) Hedging (hedge): It is to buy (sell) futures contracts whose quantity is equal to that of the spot market, but whose trading direction is opposite. , in order to compensate for the actual price risk caused by price changes in the spot market by selling (buying) futures contracts at a certain time in the future.

The most basic types of hedging can be divided into buying hedging and selling hedging. Buy hedging refers to the act of buying futures contracts through the futures market to prevent losses due to rising spot prices; selling hedging refers to selling futures contracts through the futures market to prevent losses caused by falling spot prices. Behavior.

Hedging is the driving force behind the futures market. Whether it is the agricultural product futures market, or the metal, or energy futures market, they originate from the transaction behavior of buying and selling forward contracts that are spontaneously formed when faced with risks caused by violent fluctuations in spot prices during the production and operation process. This trading mechanism for forward contract buying and selling has been continuously improved, such as standardizing contracts, introducing hedging mechanisms, establishing a margin system, etc., thus forming futures trading in the modern sense. Enterprises buy insurance for production and operations through the futures market, ensuring the sustainable development of production and operation activities. It can be said that without hedging, the futures market would not be a futures market.

Example: Hedging operation skills in bull market and bear market

1. Hedging transactions of electric copper producers in bull market

Copper prices are on the rise Among them, electric copper producers obviously rarely worry about product sales risks. For producers with mines, price increases are very beneficial to the company. The company can gradually increase its futures prices based on market conditions at a price level that ensures profits. The market performs selling to preserve value. But for smelters with insufficient raw materials (copper concentrate), they will be more worried about the rapid rise in raw material prices that will weaken the profitability of their products.

When Chinese companies import copper concentrate, they usually adopt the following two common trading methods.

(1) "Price-pointing"

Under this trading method, electric copper manufacturers can choose the appropriate price to lock in their production costs according to their needs.

(2) Average price

Under this trading method, electric copper manufacturers will obviously face greater raw material price risks in the process of rising copper prices. In order to avoid This kind of risk requires the futures market to protect the value of its trading activities in the spot market.

This hedging transaction process can be seen in Case 1:

In June 1999, a copper company signed a contract with a foreign metal group company for a copper content of 3,000 tons of metal. The concentrate supply contract, in addition to stating various physical and chemical indicators, specifically stipulates that TC/RC is 48/4.8, the pricing month is December 1999, and the contract clearing price is the March copper average of the LME (London Metal Exchange) in the pricing month. settlement price.

After signing the contract, the company was worried that continuous and large-scale production restriction activities might trigger a sharp rise in copper prices, so it decided to hedge the concentrate trade. At that time, the LME March copper futures contract price was US$1,380/ton. (Later, copper prices did rise sharply. By the pricing month, the LME March copper futures contract price had risen to US$1,880/ton, and the average settlement price of March copper was US$1,810/ton.)

So the After the contract was signed, the company immediately bought 3,000 tons of futures contracts in the futures market at a price of 1,380 US dollars/ton, (which means that the company’s target cost of copper concentrate = 1,380-(48+4.8*22.5) =1224 US dollars/ton) After the pricing month, when the clearing price of 1810 US dollars/ton is determined, (copper concentrate price=1810-(48+4.8*22.5)=1654 US dollars/ton) the company is in the futures market. At a price of US$1,880/ton, sell and close the 3,000-ton futures contract.

Table 1

Copper concentrate futures contract

The bid cost price is 1,224 US dollars/ton and the opening position is 1,380 US dollars/ton.

The actual price paid was US$1,654/ton and the position was sold and closed at US$1,880/ton

Profit and loss was US$430/ton and profit and loss was US$500/ton

The results in Table 1 show that the copper company Through this purchase hedging transaction, it not only effectively avoids the risk losses caused by price increases, but also obtains a certain profit.

What needs to be pointed out here is that electric copper production companies can not only sell hedging, but also buy hedging. In fact, in a bull market, the value preservation strategy of electric copper manufacturers should be mainly buying to preserve value.

But here, we also remind traders that they should note: This case unifies hedging trading activities in the same market environment (LME). If we have to complete the above-mentioned hedging transactions in the domestic futures market due to certain domestic policy restrictions, we must consider the impact of exchange rate factors on hedging activities.

2. Hedging transactions for CLP copper producers in the bear market

(1) For companies with self-owned mines, costs are relatively fixed, and the decline in copper prices directly weakens the profitability of the company. , companies still have to sell and hedge in the futures market to reduce losses; when extreme circumstances occur and copper prices fall below the company's cost price or even society's average cost price, companies can adopt a risk hedging strategy.

Case 2:

After the first quarter of 1999, the domestic copper price not only fell below the minimum cost line of a certain copper company, but the international copper price also fell below the recognized social average. Cost price (1,480 US dollars/ton), in the face of such market conditions, the company judged that large-scale international production restrictions will definitely lead to a sharp rise in copper prices. Based on this judgment, in order to reduce losses, the company decided to start adopting a "restricted inventory" marketing strategy. Two months later, the company's inventory was close to 20,000 tons, and copper prices did not rise as sharply as they had expected. Against this backdrop, the company's liquidity is becoming increasingly difficult. So the company further adopted a risk hedging strategy. First, they began to increase their efforts to sell inventory in the spot market, and purchased forward futures contracts in the futures market every day that were equal to the amount of inventory sold in the spot market to maintain their The amount of resources remains unchanged. A few months later, when the futures market price reached its preset target sales price, the company immediately closed out all the futures contracts it bought, thus effectively getting rid of the company's loss predicament.

In this case, the company broke the rule that "to avoid product price risks, selling hedging must be used", so we put forward this hedging transaction as a special case and summarized it Hedging risk. The purpose is to illustrate that investors do not have to stick to traditional models when formulating hedging plans. In fact, hedging transaction methods and approaches will also be developed and enriched in long-term practice. Enterprises have every reason to develop various guaranteed value strategies in specific market environments based on the basic principles of hedging.

However, it must be pointed out here that this type of hedging transaction occurs under special market background conditions. Enterprises must be cautious when applying it and consider whether the basis for judgment of the market environment is sufficient; enterprise risk resistance The affordability of funds and the adequacy of the cycle, etc.

(2) For electric copper producers that smelt with supplied materials, when copper prices fall, they will rarely consider the cost factor, that is, the price risk of concentrates, but will worry more about the excessive price drop of their products. risk losses quickly. Because in most cases, companies do not have orders in hand when organizing production. Therefore, they must consider using the hedging function of the futures market to transfer sales risks.

When manufacturing enterprises conduct this kind of hedging transaction, their hedging amount is often determined based on the quantity of goods in stock or planned sales quantity, and the selling price of the futures contract is determined based on its target profit.

Case 3:

Based on data analysis in early 1998, a copper company was worried that copper prices would fall significantly. So the company decided to conduct hedging transactions on its product, electric copper, based on the planned sales volume of 4,000 tons per month.

The company sold 5, 6, 7, and 8 in the futures market at prices of 17,450 yuan/ton, 17,650 yuan/ton, 17,850 yuan/ton, 18,050 yuan/ton, and 18,250 yuan/ton respectively. , September futures contracts are 4,000 tons each. And the company set the spot price at that time as 17,200 yuan/ton as its target sales price.

After entering the second quarter, the spot copper price dropped to 16,500 yuan/ton. According to the company’s predetermined trading strategy, from April 1, corresponding to its weekly actual sales volume, it will Futures contracts are bought and closed. The hedging transaction results as of the end of April are as follows:

Table 2

Time spot market futures market

Target sales price: 17,200 (yuan/ton) Plan Sales volume: 4,000 (tons) May futures contract selling price 17,450 (yuan/ton), contract quantity 4,000 (tons)

Actual sales volume in the first week: 1,000 tons average sales price 16,500 yuan/ton Sales loss of 700,000 yuan, May contract purchase and closing volume of 1,000 tons, closing price of 16,650 yuan/ton, closing profit of 800,000 yuan

In the second week, actual sales volume of 1,000 tons, 16,450 yuan/ton, sales loss of 75 10,000 yuan May contract buying and closing volume 1,000 tons, closing price 16,600 yuan/ton, closing profit 850,000 yuan

In the third week, actual sales volume 1,000 tons, average sales price 16,400 yuan/ton, sales loss 80 Actual sales volume of 1,000 tons in 10,000 yuan, average sales price of 16,400 yuan/ton, sales loss of 800,000 yuan

In the fourth week, actual sales volume of 1,000 tons, average sales price of 16,400 yuan/ton, sales loss of 800,000 yuan, May contract purchase The liquidation volume is 1,000 tons, the liquidation price is 16,500 yuan/ton, the liquidation profit is 950,000 yuan

Cumulative cumulative sales of 4,000 tons, cumulative sales loss of 3.05 million yuan, cumulative liquidation of 4,000 tons, cumulative liquidation profit of 3.5 million yuan< /p>

Based on the above results, after the profit and loss were offset and the transaction fee of 80,000 yuan was deducted, a profit of 370,000 yuan was still made. Therefore, the company's actual sales price is 17,290 yuan/ton. This result shows that the company effectively avoided the operating risks caused by the decline in copper prices through hedging transactions and achieved the target sales price the company hoped for.

The transaction process in each subsequent month will be the same and will not be repeated in this article. Through this case, we can conclude that in the bear market, China Electric Copper Manufacturing Enterprises should mainly sell hedging under the existing investment market conditions.

3. Hedging transactions of copper processing enterprises in the bull market

In the process of rising copper prices, the starting point for processing enterprises to conduct hedging transactions is the same as that of copper production enterprises. . They will also believe that the biggest market risk comes from rising raw material prices. Therefore, processing enterprises hope to determine their expected target costs by first establishing long positions corresponding to the spot trading volume in the futures market, which has been explained above.

We can actually state the application conditions of buying hedging in this way. Whether it is a production company or a processing company, if they judge that the market risk comes from raw material price risk, the company will use buying hedging. Enter into hedging transactions to avoid risks.

4. Hedging transactions of copper processing enterprises in the bear market

In the process of falling copper prices, copper processing enterprises will also consider less about raw material cost risks and pay more attention to The price of its products will fall with the decline in raw material prices, thereby weakening the profitability of its products.

Faced with such market risks, they often conduct hedging transactions through the commodity futures market to avoid future product price risks.

Case 4:

A certain cable factory still had 3,000 tons of copper core cables in stock at the end of 1998. The average cost of electric copper for producing this batch of cables was 18,500 yuan/ton, and this The minimum target profit sales price of a batch of cables = copper price + 2,000 yuan/ton. (Normal profit sales price = copper price + 3,000 yuan/ton) At that time, the price of cables was still falling with the drop in copper prices, and had dropped to 20,500 yuan/ton. If the decline continued, the factory’s inventory of cables would not be available. its minimum target profit. So the factory decided to use the futures market for hedging, and immediately sold 3,000 tons of March copper futures contracts in the futures market at a futures price of 17,500 yuan/ton.

At the weekend of the first week of liquidation, the factory sold 600 tons of cables in stock, with an average sales price of 20,300 yuan/ton. At the same time, the factory sold a futures price of 17,250 yuan/ton in the futures market. Buy 600 tons of futures contracts to close the position in the futures contracts held.

At the weekend of the second week of liquidation, the factory sold another 700 tons of cables in stock, with an average sales price of 20,000 yuan/ton. At the same time, the factory bought them in the futures market at a futures price of 16,950 yuan/ton. The 700-ton futures contract continues to close positions on the futures contracts held.

In the third and fourth weeks, the factory sold 800 tons and 900 tons of stock cables at average sales prices of 19,900 yuan/ton and 19,800 yuan/ton respectively, and at the same time of liquidation on the weekends, the same amount ’s positions were bought and closed in the futures market at prices of 16,850 yuan/ton and 16,750 yuan/ton. The results of this hedging transaction are detailed in the table below.

Table 3

Time spot market futures market

Inventory cable 3000 tons target profit sales price 20500 yuan/ton selling futures contract position 3000 tons futures contract price 17,500 yuan/ton

In the first week, 600 tons of cables in stock were sold. The average sales price was 20,300 yuan/ton. A loss of 120,000 yuan. The remaining cables in stock were 2,400 tons. Buy and close. 600 tons. Closing price: 17,250 yuan/ton. Profit 15 The remaining short position of 10,000 yuan is 2,400 tons

In the second week, 700 tons of cables in stock were sold at an average sales price of 20,000 yuan/ton, with a loss of 350,000 yuan. The remaining cables in stock were 1,700 tons and the position was bought and closed. 700 tons were sold at a closing price of 16,950 yuan/ton. Profit per ton: RMB 385,000. Remaining short position: RMB 1,700/ton

In the third week, 800 tons of cables in inventory were sold. The average sales price was RMB 19,900/ton. Loss: RMB 480,000. Remaining short position: 900 tons. Buy and close positions: 800 tons. Position price 16,850 yuan/ton, profit 520,000 yuan, remaining short position 900 tons

In the fourth week, 900 tons of inventory cables were sold, the average sales price was 19,800 yuan/ton, loss 630,000 yuan, remaining inventory cable 0, buy and close 900 The closing price per ton is 16,750 yuan/ton and the profit is 675,000 yuan. The remaining short position is 0

The cumulative loss is 1.58 million yuan and the profit is 1.73 million yuan.

We use the results shown in Table 3 to calculate the profit and loss. After offsetting the transaction cost of 60,000 yuan, the actual sales price of the factory's 3,000 tons of inventory cables was 20,530 yuan/ton, completely avoiding the risk losses caused by falling product prices.

We can describe the application conditions of selling hedging in this way. Regardless of manufacturing companies or processing companies, when they judge that the market risk faced by the company comes from product price risk, the company will choose Sell ??hedging transactions to avoid risks.