ipsas 29—financial instruments: recognition and measurement - IFAC

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FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT December 31, 20X1 Dr Surplus or deficit (interest element) LC1,165 Cr Net assets/equity (spot element) LC777 Cr Forward liability LC388 To record the change in the fair value of the forward exchange contract between June 30, 20X1 and December 31, 20X1, i.e., LC388 – 0 = LC388. The change in the present value of spot settlement of the forward exchange contract is a gain of LC777 ({([1.080 × 100,000] – 107,200)/1.06(6/12)} – {([1.072 × 100,000] – 107,200)/1.06}), which is recognized in net assets/equity (IPSAS 29.106). The change in the interest element of the forward exchange contract (the residual change in fair value) is a loss of LC1,165 (388 + 777), which is recognized in surplus or deficit (IPSAS 29.83 and IPSAS 29.64(a)). The hedge is fully effective because the gain in the spot element of the forward contract (LC777) exactly offsets the change in the purchase price at spot rates (LC777 = {([1.080 × 100,000] – 107,200)/1.06(6/12)} – {([1.072 × 100,000] – 107,200)/1.06}). March 31, 20X2 Dr Net assets/equity (spot element) LC580 Dr Surplus or deficit (interest element) LC1,003 Cr Forward liability LC1,583 To record the change in the fair value of the forward exchange contract between January 1, 20X2 and March 31, 20X2, i.e., LC1,971 – LC388 = LC1,583. The change in the present value of the spot settlement of the forward exchange contract is a loss of LC580 ({([1.074 × 100,000] – 107,200)/1.06(3/12)} – {([1.080 × 100,000] – 107,200)/1.06(6/12)}), which is recognized in net assets/equity (IPSAS 29.106(a)). The change in the interest element of the forward exchange contract (the residual change in fair value) is a loss of LC1,003 (LC1,583 – LC580), which is recognized in surplus or deficit (IPSAS 29.83 and IPSAS 29.,64(a)). The hedge is fully effective because the loss in the spot element of the forward contract (LC580) exactly offsets the change in the purchase price at spot rates [(580) = {([1.074 × 100,000] – 107,200)/1.06(3/12)} – {([1.080 × 100,000] – 107,200) /1.06(6/12)}]. Dr Property, plant and equipment (purchase price) LC107,400 Dr Net assets/equity LC197 Cr Property, plant and equipment (hedging gain) LC197 Cr Payable LC107,400 To recognize the purchase of the paper at the spot rate (= 1.074 × FC100,000) and remove the cumulative gain on the spot element of the forward exchange contract that has been recognized in net assets/equity (LC777 – LC580 = LC197) and include it in the initial measurement of the purchased paper. Accordingly, the initial measurement of the purchased paper is LC107,203, consisting of a purchase consideration of LC107,400 and a hedging gain of LC197. 1243 IPSAS 29 IMPLEMENTATION GUIDANCE PUBLIC SECTOR
FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT June 30, 20X2 Dr Payable LC107,400 Cr Cash LC107,200 Cr Surplus or deficit LC200 To record the settlement of the payable at the spot rate (FC100,000 × 1.072 = LC107,200) and the associated exchange gain of LC200 (– [1.072 – 1.074] × FC100,000). Dr Surplus or deficit (spot element) LC197 Dr Surplus or deficit (interest element) LC232 Cr Forward liability LC429 To record the change in the fair value of the forward exchange contract between April 1, 20X2 and June 30, 20X2 (i.e., LC2,400 – LC1,971 = LC429). The change in the present value of the spot settlement of the forward exchange contract is a loss of LC197 ([1.072 × 100,000] – 107,200 – {([1.074 × 100,000] – 107,200)/1.06(3/12)}), which is recognized in surplus or deficit. The change in the interest element of the forward exchange contract (the residual change in fair value) is a loss of LC232 (LC429 – LC197), which is recognized in surplus or deficit. The hedge is fully effective because the loss in the spot element of the forward contract (LC197) exactly offsets the change in the present value of the spot settlement of the payable [(LC197) = {[1.072 × 100,000] – 107,200 – {([1.074 × 100,000] – 107,200)/1.06(3/12)}]. Dr Forward liability LC2,400 Cr Cash LC2,400 To record the net settlement of the forward exchange contract. The following table provides an overview of the components of the change in fair value of the hedging instrument over the term of the hedging relationship. It illustrates that the way in which a hedging relationship is designated affects the subsequent accounting for that hedging relationship, including the assessment of hedge effectiveness and the recognition of gains and losses. Period ending Change in spot settlement IPSAS 29 IMPLEMENTATION GUIDANCE 1244 Fair value of change in spot settlement Change in forward settlement Fair value of change in forward settlement Fair value of change in interest element LC LC LC LC LC June 20X1 – – – – – December 20X1 800 777 (400) (388) (1,165) March 20X2 (600) (580) (1,600) (1,583) (1,003) June 20X2 (200) (197) (400) (429) (232) Total – – (2,400) (2,400) (2,400)
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ipsas 29—financial instruments: recognition and measurement - IFAC

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