Sunday, March 08, 2009
3:31 PM...............................................................................
Cashflow hedge
1. Fair value changes affects only hedging hedging instrument (not item)
2. Adjusted for fair value changes against carrying amount on B/S
3. Change in fair value is separated to effective and non effective portion
Effective portion --> deferred to equity
Ineffective portion --> recognized as an expense on the I/S
4. The effective portion is lesser of of the following (in absolute amounts):
(a) the cumulative change (gain or loss) in hedging instrument from inception
(b) the cumulative change in present value of the expected cashflow of the hedge item from the inception of the hedge
5. If hedge item is a financial asset/liability: the deferred loss or gain in equity is taken to P/L in the same period during which the asset/liability affects profit or loss (eg periods interest income is recognized)
6. If hedged item is a forcasted item that will result in recognition of a non-financial asset/liability, one of the following can be adopted:
(a) recognized the deferred gain/loss in the I/S as asset is depreciated/a,amortized
(b) transfer the deferred gains or losses to adjust the initial cost or other carrying amount of the asset/liability
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I know all this just requires a little getting use to.
ah ha.
