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Hi Chris,
Just watched the new lectures on Hedge Accounting and I am completely lost on what the journal entries would be.
In the Murphy Inc example in the Cash Flow Hedge video:
At reporting period when gain is recognised, would it be:
DR Financial Asset (SFP) 0.05m
CR OCI (SPLOCI) 0.05mUpon buying oranges
DR Expense (SPL) 0.25m
CR Bank (SFP) 0.25mReclassify OCI to SPL
DR OCI (SPLOCI) 0.05m
CR Expense (SPL) 0.05mI am obviously missing something here as that would leave an asset in SFP of 0.05m. Could you please tell me the correct Journal entries for this question.
Thanks
MichaelWould the 2nd entry be:
DR Expense (SPL) 0.25m
CR Bank 0.2m
CR Financial Asset 0.05mHi,
I’ve deliberately avoided the journal entries as they get too confusing. You’re correct in what you’ve done though so well thought out.
On the purchase of the oranges, we also close out the hedging instrument hence the cash receipt of 0.05m that reduces the net cash flow to 0.2m, whilst the reclassifying of the gain from OCI reduces the net expense to 0.2m too. Clever but too confusing. Rest assured you wouldn’t be required to post journals in the exam.
Hope you found the rest of the video useful.
Thanks
Ok, thanks very much.
Yes the new lectures were very helpful and just in time for tomorrow’s exam.
Thanks again.
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