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  • FAR - Derivatives

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    ralphalonzo
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    This document discusses hedge accounting and derivatives. It outlines how to account for changes in fair value of derivatives and hedged items depending on whether they are designated as a cash flow hedge, fair value hedge, or have no hedging designation. It provides mnemonics to remember the accounting treatment and examples of common derivatives like interest rate swaps, forward contracts, and foreign currency forwards.

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    This document discusses hedge accounting and derivatives. It outlines how to account for changes in fair value of derivatives and hedged items depending on whether they are designated as a cash flow hedge, fair value hedge, or have no hedging designation. It provides mnemonics to remember the accounting treatment and examples of common derivatives like interest rate swaps, forward contracts, and foreign currency forwards.

    Copyright:

    © All Rights Reserved
    Scarica in formato DOCX, PDF, TXT o leggi online su Scribd
    Segnala contenuti inappropriati
    308 visualizzazioni1 pagina

    FAR - Derivatives

    Caricato da

    ralphalonzo
    This document discusses hedge accounting and derivatives. It outlines how to account for changes in fair value of derivatives and hedged items depending on whether they are designated as a cash flow hedge, fair value hedge, or have no hedging designation. It provides mnemonics to remember the accounting treatment and examples of common derivatives like interest rate swaps, forward contracts, and foreign currency forwards.

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    © All Rights Reserved
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    Derivatives AND HEDGE ACCOUNTING

    Measurement: Fair value

    Situations:

    Cash flow hedge Fair value hedge No hedging designation

    FV of derivative OCI (effective portion) P/L P/L


    P/L (ineffective portion)

    FV of hedged item Not adjusted to fair value Adjusted to fair value

    Terms used Unrealized gain/loss Realized gain/loss


    This is like a speculation.
    Mnemonics N not adjusted to FV F receive fixed
    O OCI R realized
    V receive variable A adjusted to FV
    U unrealized P P/L

    Examples of derivatives

    1. Interest rate swap


    a. Receive variable, pay fixed interest rate swap (cash flow hedge)
    b. Receive fixed, pay variable interest rate swap (fair value hedge)
    2. Forward contract
    3. Futures contract
    4. Option
    5. Foreign currency forward contract

    Interest rate swap

    Payable
    Interest expense
    Swap receivable/payable

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