ipsas 29—financial instruments: recognition and measurement - IFAC
ipsas 29—financial instruments: recognition and measurement - IFAC
ipsas 29—financial instruments: recognition and measurement - IFAC
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FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT<br />
Debit Credit<br />
External forward contract LC5 –<br />
Gains <strong>and</strong> losses – –<br />
Internal contracts – –<br />
Case 2: Offset of Cash Flow Hedges<br />
To extend the example, A also has highly probable future revenues of FC200 on<br />
which it expects to receive cash in 90 days. B has highly probable future expenses of<br />
FC500 (rental for offices), also to be paid for in 90 days. A <strong>and</strong> B enter into separate<br />
forward contracts with TC to hedge these exposures <strong>and</strong> TC enters into an external<br />
forward contract to receive FC300 in 90 days.<br />
As before, FC weakens at the end of month 1. A incurs a “loss” of LC20 on its<br />
anticipated revenues because the LC value of these revenues decreases. This is offset<br />
by a “gain” of LC20 on its forward contract with TC.<br />
B incurs a “gain” of LC50 on its anticipated advertising cost because the LC value of<br />
the expense decreases. This is offset by a “loss” of LC50 on its transaction with TC.<br />
TC incurs a “gain” of LC50 on its internal transaction with B, a “loss” of LC20 on its<br />
internal transaction with A <strong>and</strong> a loss of LC30 on its external forward contract.<br />
A <strong>and</strong> B complete the necessary documentation, the hedges are effective, <strong>and</strong> both A <strong>and</strong><br />
B qualify for hedge accounting in their individual financial statements. A recognizes the<br />
gain of LC20 on its internal derivative transaction in net assets/equity <strong>and</strong> B recognizes<br />
the loss of LC50 in net assets/equity. TC does not claim hedge accounting, but measures<br />
both its internal <strong>and</strong> external derivative positions at fair value, which net to zero.<br />
At the end of month 1, the following entries are made in the individual or separate<br />
financial statements of A, B <strong>and</strong> TC. Entries reflecting transactions or events within<br />
the economic entity are shown in italics.<br />
A’s entries<br />
Dr Internal contract TC LC20<br />
Cr Net assets/equity LC20<br />
B’s entries<br />
Dr Net assets/equity LC50<br />
Cr Internal contract TC LC50<br />
TC’s entries<br />
Dr Internal loss A LC20<br />
Cr Internal contract Cr A LC20<br />
Dr Internal contract B LC50<br />
Cr Internal gain B LC50<br />
Dr Foreign exchange loss LC30<br />
Cr External forward contract LC30<br />
1203<br />
IPSAS 29 IMPLEMENTATION GUIDANCE<br />
PUBLIC SECTOR