ipsas 29—financial instruments: recognition and measurement - IFAC

FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT
TOTAL (for the internal derivatives) A B Total
LC LC TC
Surplus or deficit (fair value hedges) 10 (5) 5
Net assets/equity (cash flow hedges) 20 – 20
Basis adjustment (inventory) – (50) (50)
Total 30 (55) (25)
Combining these amounts with the external transactions (i.e., those not marked in
italics above) produces the total net balances before elimination of the internal
derivatives as follows:
IPSAS 29 IMPLEMENTATION GUIDANCE 1208
Debit Credit
Receivables – LC10
Payables LC5 –
Forward contract – LC25
Net assets/equity – LC20
Basis adjustment (inventory) LC50 –
Gains and losses – –
Internal contracts – –
For the consolidated financial statements, the following designations are made at the
beginning of month 1:
• The payable of FC50 in B is designated as a hedge of the first FC50 of the
highly probable future revenues in A. Therefore, at the end of month 1, the
following entry is made in the consolidated financial statements: Dr Payables
LC5; Cr Net assets/equity LC5.
• The receivable of FC100 in A is designated as a hedge of the first FC100 of
the highly probable future expenses in B. Therefore, at the end of month 1, the
following entries are made in the consolidated financial statements: Dr Net
assets/equity LC10; Cr Receivable LC10; and at the end of month 2, Dr
Inventory LC10; Cr Net assets/equity LC10.
• The external forward contract on FC250 in TC is designated as a hedge of the
next FC250 of highly probable future expenses in B. Therefore, at the end of
month 1, the following entry is made in the consolidated financial statements:
Dr Net assets/equity LC25; Cr External forward contract LC25; and at the end
of month 2, Dr Inventory LC25; Cr Net assets/equity LC25.
The total net balances after elimination of the accounting entries relating to the internal
derivatives are as follows: