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Cash flow hedging

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › Cash flow hedging

  • This topic has 1 reply, 2 voices, and was last updated 5 years ago by Stephen Widberg.
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  • November 21, 2020 at 11:37 am #595895
    manishatai
    Member
    • Topics: 35
    • Replies: 21
    • ☆☆

    Hi,
    I have just come across a question in which I have tried to apply the logic behind the video I have just watched on cash flow hedging but I am struggling..

    A company enters into a derivative contract in order to protect cash inflows.
    The FV of the instrument was nil at inception.
    At the reporting date – the FV of the loss in respect of future cash flows was $9,100.

    Explain the accounting treatment if the fair value of the hedging instrument was :

    a) $8,500
    b) $10,000

    Sorry – I am struggling here – what is the $9,100? is that the loss in OCI. I cannot work this out at all, because I am struggling to see where the hedging item is – it doesn’t give any details on this.

    Thanks

    November 22, 2020 at 8:35 am #596014
    Stephen Widberg
    Keymaster
    • Topics: 17
    • Replies: 3444
    • ☆☆☆☆☆

    Hedged item is expected future cash flows of 9100 – not yet recognised in the FS

    Hedging instrument is derivative

    (a) Gain in derivative to OCI

    (b) Gain on derivative – 9100 to OCI and 900 to P&L

    Go easy on hedging – exam questions are not that hard (honestly!)

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