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maam in part a)ii) willis co- why are the forward commodity options used to hedge against fluctuations in raw material prices accounted for under cash flow hedge?
Again, there is no hedge accounting – derivatives must be measured at FV (i.e. $0 at inception).
am sorry ma’am seams like I misphrased my question, my question was why NOT has hedge accounting rules (cash flow hedge) been applied?
You are saying that we don’t apply hedge accounting, but could you elaborate on it?
Remind yourself of the criteria for hedge accounting to apply – you cannot hedge account with a derivative – there is only one accounting treatment for all derivatives under IFRS.
At inception date, FV is $0.
If you win on a derivative:
Dr Financial asset Cr SoPL, and then receive cash.
If you lose on a derivative:
Dr SoPL Cr Financial liability, and then pay cash