F3 Flashcards
What is a fair value hedge
It is a hedge against the change in value of an asset or liability that could affect the profit or loss.
What is a cash flow hedge?
A hedge against the risk of a change in future cash flows that could affect profit.
What is a hedge of a net investment in a foreign operation?
Hedge against change in value in a foreign investment
What are the Condition for hedge accounting?
IAS39
Designed at its inception
Highly effective 80 or 125%
Effectiveness can be reliably measured
What is the accounting treatment of a fair value hedge?
Change in instrument at FV is recognised in the P&L.
Dr instrument
Cr P&L
Change in item goes to P&L
What is hedge effectiveness?
The degree to which changes are offset by the instrument
What is a derivative?
A financial instrument that derives its value from price or rate of an underlying item.
Examples: Forwards Futures Options Swaps
What is a forward contract?
An agreement to buy or sell an asset at a fixed price at a fixed future date
What is a futures contract?
Agreement to buy or sell an asset at a fixed rate/price at a future date (same as a forward, but) contracts are standardised and traded on an exchange.
What is an option?
Right (but no obligation) to buy at a pre determined price.
What is a swap?
Agreement to swap one set of cash flows for another. (Normally interest rate or currency swaps)
Accounting treatment of cash flow hedge?
Effective portion of instrument goes to OCI with the change in the item (these match off, with a zero net affect)
Ineffective change in the instrument goes to P&L
Accounting treatment of a hedge of a net investment in a foreign sub.
Same as per cash
Accounting treatment of derivatives?
Normally when no hedge accounting, changes are recognised through P&L.
What is a finance Leeds?
Lessee uses the thing
Financer finances it
L is responsible for upkeep
Will use it for most of its life
