Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › Forward Contract Accounting: Follow IAS 21 or Hedge Accounting
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- June 18, 2019 at 4:48 am #520701
Dear Sir,
Currently, I am quite confused with a problem related to forward contract when learning the Hedge Accounting.
For an example, say we have a supplier payable in 3 months amount 100 USD. We speculate that the USD will be much stronger after 3 months, so we sign a forward contract with bank with the forward rate 1USD=22CU (domestic currency unit).
If I follow the Para 26 IAS 21, at the reporting date, we would translate 100 USD to CU @ rate 22 (as it is the rate the payable amount “could have been settled”). I think it is logical and simple, also it reflects correctly the CU amount we have to pay in future.
But if I follow the hedge accounting, in this case it is the fair value hedging. It requires to know the spot rate and forward rate @ the reporting date and we have to make some more complicated entries such as adjusting the value of the payable and recognizing the financial asset/liability of the forward contract.
I am not sure which one is correct?
June 21, 2019 at 10:45 pm #521027Hi,
With a fair value hedge you need to calculate the value of both the item and instrument at the reporting date and any changes in value go through profit or loss.
Thanks
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