Derivatives Hedging Translation Flashcards
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How are derivatives recorded?
At cost when acquired re-valued to fair value each period on Balance Sheet.
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How are unrealized gains/losses on trading securities recorded?
Recorded on income statement
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How are gains and losses on Available for Sale (AFS) securities recorded?
They are included in Other Comprehensive Income.
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What is a Fair Value Hedge? How is it recorded?
Fair Value Hedge offsets exposure to changes in the value of a recognized asset/liability or of an unrecognized commitment
Initially recorded on Balance Sheet at Fair Value
Gains/Losses recorded on Income Statement
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What is a Cash Flow Hedge? How is it recorded?
Cash flow hedges protect from exposure to fluctuations in cash flows.
Initially recorded on Balance Sheet at Fair Value
Gains/Losses going to OCI
Example: A cereal company enters into a futures contract on grain purchases to offset the risk that grain will go up in price.
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Where are gains and losses on foreign currency hedges recorded?
In Other Comprehensive Income (OCI)
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What disclosures are required for derivative transactions?
Objectives and Strategies
Context to help investor understand the instrument
Risk Management Policies
Complete List of Hedged Instruments
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How do transactions denominated in in a currency other than a company’s functional currency affect the income statement?
Fluctuations in that currency cause a gain or loss that must be recognized on the income statement as Income from Continuing Operations
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What causes a Foreign Currency Transaction G/L?
A change in exchange rates between the functional currency and the transaction currency
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Where are Foreign Currency Transaction G/L recorded?
Income Statement
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Where are Foreign Currency Translation G/L recorded?
OCI
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If the Functional Currency equals the Local Currency - what rate is used for translating Assets and Liabilities?
Current Rate as of the Balance Sheet Date
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If the Functional Currency equals the Local Currency - what rate is used for translating Revenues and Expenses?
Weighted Average Exchange Rate for the year
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If the Functional Currency equals the Reporting Currency - what Exchangee Rate is used??
Use Weighted Average - Historical Exchange Rates (Inventory and Pre-paid Assets and Property Plant and Equipment) and Current Exchange Rates (Monetary Assets and Liabilities and Inventory @ Market and Trading Securities and Deferred Taxes)
