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 debt securities recorded?
Recorded on Income Statement
Note: Only debt securities are classified as Trading or AFS. Equity securities no longer carry these classifications.
How are gains and losses on Available for Sale (AFS) Debt Securities recorded?
They are included in Other Comprehensive Income.
Note: Only debt securities are classified as Trading or AFS. Equity securities no longer carry these classifications.
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.
It is initially recorded on Balance Sheet at Fair Value.
Gains/Losses recorded on Income Statement
What is a Cash Flow Hedge? How is it recorded?
Cash flow hedges protect from exposure to fluctuations in cash flows.
It is 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.
Where are gains and losses on foreign currency hedges recorded?
In Other Comprehensive Income (OCI)
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
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.
What causes a Foreign Currency Transaction G/L?
A Foreign Currency Transaction G/L is caused by a change in exchange rates between the functional currency and the transaction currency.
Where are Foreign Currency Transaction G/L recorded?
Income Statement
Where are Foreign Currency Translation G/L recorded?
OCI
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
If the Functional Currency equals the Local Currency, what rate is used for translating Revenues and Expenses?
Weighted Average Exchange Rate for the year.
If the Functional Currency equals the Reporting Currency, what Exchange 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)
