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Hello dear tutor…
In june dec 2014-Q2-c:
I know that according to ACCA’ article hedge accounting is PERMITTED if these 3 conditions are met:
1-hedge must be designated
2-the effectiveness must be measurable
3-it must be highly effective (80%-125%)My questions are as follows:
1-What do we meant by PERMITTED?
2-Whats the happend if hedge is not permitted?
3-in that article it is said that,we must recognise the full amount of gain or loss on hedge instrument if it is not permitted(for example if the effectiveness is out of range), but in this question while the effectiveness is out of range,the examiner said nothing about this point.is it correct to say we must reconise the full amount of 203(gain on interest rate swap) in the sop&l?
4-should we remeasure risk and change our hedge instrument(for example from swap to forward contract) if the the hedge acconting is not permitted for swap(like this question)?
5-what else should we do if hedge accounting is not permitted?
Thanks alot
Hi,
Permitted means allowed, so we can use hedge accounting if the criteria are met. If the criteria are not met then we cannot hedge account and we must use the normal accounting rules for the item and instrument.
Yes as the swap is a derivative and is not effective as a hedging instrument then it will be treated like a normal derivative and the gain or loss recorded through profit or loss.
Thanks
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