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Discontinuing hedge accounting
Extract from FRS102 Section 12.25
12.25 The entity may discontinue hedge accounting provided the entity has documented its election.
The entity shall discontinue hedge accounting when:
(a) the hedging instrument has expired, is sold, terminated or exercised; or
(b) the conditions for hedge accounting in paragraph 12.18 are no longer met.
In all cases, hedge accounting shall be discontinued prospectively.
12.25A In a fair value hedge, any adjustment arising from paragraph 12.20(b) is dealt with in accordance with paragraph 12.22.
In a cash flow hedge, if the hedged future cash flows are no longer expected to occur, the amount that has been accumulated in the cash flow hedge reserve in accordance with paragraph 12.23(a) shall be reclassified from the cash flow hedge reserve to profit or loss immediately. If the hedged future cash flows are still expected to occur (for example a future cash flow that is no longer highly probable may still be expected to occur), the cumulative gain or loss in the cash flow hedge reserve is dealt with in accordance with paragraph 12.23(d).
In a net investment hedge, in accordance with paragraph 12.24, the amount that has been accumulated in equity is not reclassified to profit or loss.
OmniPro comment
See below an example showing the application of the above guidance to cash flow hedges:
Example 18
On 1 February, Company A has a highly probable forecasted sale expected to occur on 31 July and cash will be collected on 31 August.
Company A takes out a forward contract of CU100,000 to cover this sale.
On 30 April the Company no longer thinks it is highly probable that the sale will happen however it is possible.
At 30 June it is no longer possible that the sale will go ahead.
The fair values at each date are:
Fair value of forward contract
28 February CU20,000
31 March CU25,000
30 April CU15,000
31 May CU10,000
31 july CU5,000 AND SETTLED
SEE ACCOUNTING FOR SAME BELOW
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