Ch. 20 - Hedge Accounting

Question 1

Hedge Accounting Criteria (main):

Answer 1

1. Must consist of an eligible hedged item and hedging instrument
2. Hedging relationship is formally designated and documented
3. the three effectiveness requirements are met

Question 2

Two types of hedges:

Answer 2

1. fair value hedges

2. cash flow hedges

Question 3

Fair Value Hedges:

Answer 3

protects against changes in the fair value of the hedged item

Question 4

Cash Flow Hedges:

Answer 4

used for anticipated transactions

Question 5

ASPE Criteria to use hedge accounting

Answer 5

1. must designate and document the relationship
2. the hedging item and instrument must have the same critical terms
3. the expected transactions must be probable

Question 6

ASPE allows hedging when:

Answer 6

1. a forward contract is used to hedge an anticipated foreign currency cash flow
2. a forward contract is used to hedge an anticipated purchase or sale of a commodity
3. an interest rate swap is used to hedge interest rate risk

Question 7

ASPE - recording hedge accounting

Answer 7

the hedge instrument is not recorded until it matures, and it is recorded against the hedged item

Question 8

Hedge Accounting included in IFRS #

Answer 8

9

Question 9

Hedge Accounting included in ASPE #

Answer 9

3856

Question 10

Hedge accounting criteria (effectiveness requirements):

Answer 10

a) an economic relationship exists b/w the item / instrument
b) credit risk does not dominate the change in value
c) the hedge ratio is the same for:
i) the hedge relationship
ii) the quantity of the hedged item and the hedging instrument

Question 11

Eligible hedged items

Answer 11

1. an existing asset or liability position
2. an unrecognized firm commitment
3. a highly probable future transaction

Question 12

Eligible hedging instruments

Answer 12

1. derivatives

2. monetary assets and liabilities

Question 13

ASPE Hedging criteria

Answer 13

1. Hedging relationship is designated and documented
2. Hedging instrument and hedged item must have the same critical terms
3. For anticipated transactions, the expected transaction must be probable