5.05- Derivatives and Hedging Instruments under IFRS Flashcards
How are derivatives that are not designated as hedges recognized? 3 things
- As assets or liabilities
- at FV
- remeasured each balance sheet date with unrealized gains/losses included in income
Under IFRS what are the three types of hedges?
- Cash Flow Hedges
- Fair Value Hedges
- Hedges of net investments in foreign operations
What is a cash flow Hedges under IFRS?
It reduces or eliminates the risk of changes in cash flows that are the result of a specific risk associated with a recognized asset or liability or a forecast transaction that is probable
What is an example of cash flow hedge in IFRS?
A debtor with a variable loan rate which can help risk of changes in payment amounts by entering into an interest swap
Where are unrealized gains/losses recognized in cash flows?
in OCI
What are fair value hedges?
they reduce or eliminate the risk of changes in the FV of a recognized asset/liability or an unrecognized firm commitment
Where are unrealized gains/losses recognized in FV hedges?
in Earnings
What is an example of a FV hedge?
an entity with inventory consisting of agricultural products can enter into a future contract to help the risk of changes in FV of inventory
Where are hedges of net investments in foreign operations accounted for?
As Cash Flow Hedges
What are compound financial interests?
Non-derivative financial instruments that have both liability and equity components- split into debt and equity
What is an embedded derivative?
contract that has a component that causes the cash flows from the combined instrument to happen like a derivative indicating an embedded derivative
How do you report an embedded derivative when the host is a financial asset?
as a single instrument and accounted for under amortized cost method or at FVTPL
How do you report an embedded derivative when the host contract is not an asset?
the embedded derivative is separated or bifurcated from the host and accounted for separately
