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Contents
12.1 Deciding what instruments come within the scope of section 12.
12.2 Accounting policy choice.
12.2.1 Extract from FRS 102-Sections 12.2–12.2A.
12.2.2.1 What is the accounting policy choice?
12.2.2.2 What accounting policy to choose for an entity.
12.3.1 Extract from FRS 102-Section 12.3–12.5.
12.3.2.1 Items excluded from Section 12 of FRS 102:
12.3.2.2 Items coming within the scope of Section 12 of FRS 102.
12.3.2.2.1.1 Unguaranteed Capital and variation in return linked to a fund.
12.3.2.2.1.2 Collective investment funds.
12.3.2.2.1.3 Loan extension option where rate on the extension is determined at inception.
12.3.2.2.1.5 Variation in return which is dependent on future contingencies.
12.2.2.2.1.7 Investments with profit bonds.
12.3.2.2.1.8 Loans which are linked to value of net assets.
12.3.2.2.1.9 Loan repayments linked to repayments on another loan or tranche of a loan.
12.3.2.2.1.12 Leases with non-standard contractual terms.
12.3.2.2.1.13 Contingent consideration for the seller.
12.3.2.2.1.14.1 The own use exemption.
12.3.2.2.1.16 Warrants that can be settled in cash or in exchange for another financial instrument;
12.3.2.2.1.19 Repurchase agreements;
12.3.2.2.1.20 Compound financial instruments.
12.3.2.2.1.21 A firm commitment which is contractually binding.
12.3.2.2.1.22 Where the variable rate on a loan is leveraged.
12.3.2.2.1.23 Where a bond has a negative yield.
12.4 Initial recognition and subsequent measurement of financial assets and liabilities.
12.4.1 Extract from FRS 102-Section 12.6-12.9.
12.4.2.2 Subsequent recognition.
12.4.2.2.1 Subsequent recognition – General.
12.4.2.2.1.1.1 Financial instruments not permitted to be fair valued under Company Law.
12.4.2.2.1.1.1.1 The accounting treatment where this exception applies.
12.4.2.2.1.1.2.1 The accounting treatment where this exception applies.
12.4.2.2.1.1.3 Where hedge accounting is applied.
12.4.2.2.2 Financial instruments not permitted to be fair valued under Company Law.
12.4.2.2.2.1.1 Financial instruments permitted to be fair valued under Company Law.
12.4.2.2.2.1.1.2.2 Derivative financial instrument.
12.4.2.2.2.1.1.2.2.1 Derivative – defined.
12.4.2.2.2.1.1.2.2.1.1 Examples of Derivatives.
12.4.2.2.2.1.1.2.3 Eliminate an accounting mismatch.
12.4.2.2.2.1.1.2.4 Instrument contains an embedded derivative that is not closely related.
12.4.2.2.2.1.1.2.4.0 Overview.
12.4.2.2.2.1.1.2.4.2 Embedded derivative defined.
12.4.2.2.2.1.1.2.4.3 Identify whether the embedded derivative is or is not closely related.
12.4.2.2.2.1.1.2.4.3.1 Examples where the embedded derivative is not closely related.
12.4.2.2.2.1.1.2.4.3.2 Examples where the embedded derivative is closely related.
12.5.1 Extract from FRS 102 section 12.10 – 12.12.
12.5.2.1 The fair value model to utilise.
12.5.2.2 The fair value of a financial instrument due on demand.
12.5.2.3 Transaction costs and fair value.
12.5.2.4 Examples of fair valuation techniques for complex instruments.
12.5.2.5 Deferred tax and the fair value adjustments.
12.5.2.5.1 Deferred tax and fair value adjustments where they relate to trade assets/liabilities.
12.5.2.5.3 Deferred tax where hedge accounting is applied.
12.5.2.6 Examples of fair valuing financial instruments where market rates are not available.
12.5.2.7 Foreign currency forward contracts.
12.5.2.7.2 Accounting for forward foreign currency contracts – non hedging – Examples.
12.5.2.7.3 Accounting for interest rate swaps – non hedging – Examples.
12.6 Impairment of financial instruments measured at cost or amortised cost.
12.6.1 Extracts from FRS 102 – section 12.3.
12.7 Derecognition of a financial asset or financial liability.
12.7.1 Extract from FRS 102 – section 12.14.
12.7.2.1 Non-hedged instruments.
12.8.1 Extract from FRS102 section 12.15 – 12.17C.
12.8.2.2 Hedged item – defined.
12.8.2.3 Hedging instrument – defined.
12.8.2.4 Purpose of hedge accounting.
12.8.2.5 What can be hedged under hedge accounting?
12.8.2.6.1 Firm commitment – Defined.
12.8.2.6.2 Classification of Firm commitments as a hedge – fair value or cash flow hedge?
12.8.2.6.3 The exception for fair valuing firm commitments – Own use exception to fair value.
12.8.2.6.4 Determining the fair value of a commitment.
12.8.2.7 Forecast transaction.
12.8.2.7.1 Forecast transaction – Defined.
12.8.2.7.2 Forecast transaction – Indicators that such a transaction exists.
12.8.2.8 Intra-group hedging & when hedge accounting can be applied.
12.8.2.8.1 Intra-group hedging – Example.
12.9 Grouping of items as hedged items.
12.9.1 Extract from FRS102-Section 12.16B.
12.10 Hedging a component of an item.
12.10.1 Extract from FRS102-Section 12.16C.
12.10.2.2 Examples illustrating hedging a component of an item.
12.10.2.2.1 Hedging with a forward contract where contract is less than the probable sale amount.
12.10.2.2.2 Hedging part payments.
12.10.2.2.3 Hedging part payments.
12.11.1 Extract from FRS102-Section 12.17-12.17C.
12.11.2.1 What instruments can be classified as a hedging instrument?
12.11.2.2 Portion of a hedging instruments.
12.11.2.3 Instrument used to hedge a foreign currency risk.
12.11.2.4.1 What is an option and what is a written option?
12.11.2.4.2 Determining the fair value of an option and using it as a hedging instrument.
12.12 Conditions for hedge accounting.
12.12.1 Extract from FRS102-Section 12.18-12.18A.
12.12.2.1 When can hedge accounting be applied from and conditions must be met?
12.12.2.2 What is an economic relationship?
12.12.2.3 Designation and documentation.
12.12.2.4 Causes of hedge ineffectiveness.
12.12.2.4.2 Example of hedge ineffectiveness documented for an interest rate swap.
12.13 Accounting for qualifying hedging relationships.
12.13.1 Extract from FRS102-Section 12.19-12.19A.
12.13.2.1 The three types of hedge relationships for hedge accounting.
12.14.1 Extract from FRS102 – Section 12.19B-12.22.
12.14.2.1 What is a fair value hedge and what does it do?
12.14.2.2 The accounting for a fair value hedge.
12.14.2.2.1 Examples of fair value hedges and the accounting for same.
12.14.2.2.1.1 Fixed interest rate on a debt instrument (financial instrument).
12.14.2.2.1.1.1 Amortised cost on cessation of hedging where financial instrument exists.
12.14.2.2.1.2 Firm commitment not recognised on balance sheet.
12.14.2.2.1.3 Hedge of a foreign currency risk of an unrecognised firm commitment.
12.15.1 Extract From FRS 102 – Section 12.22(b) and 12.23.
12.15.2.1 Cash flow hedge defined.
12.15.2.2 Accounting for cash flow hedges – hedge accounting.
12.15.2.3 Examples of cash flow hedge accounting.
12.15.2.3.1 Forward contract for a probable forecasted sale.
12.15.2.3.1.1 Forward contract for a probable forecasted sale.
12.15.2.3.1.2 Forward contract for a probable forecasted purchase.
12.15.2.3.2 Hedge of variability in cash flows in a floating rate loan due to interest rate risk.
12.15.2.3.2.1.1 Fair valuing an interest rate swap.
12.15.2.3.2.3 Hedge of variability in cash flows in a floating rate loan due to interest rate risk.
12.16 Hedges of a net investment in a foreign operation.
12.16.1 Extract from FRS 102 Section 12.24.
12.16.2.1 Net investment in a foreign operation defined.
12.16.2.2 When can a net investment in a foreign operation be hedged?
12.16.2.3 What is the hedged item and instrument in a net investment in a foreign operation?
12.17 Discontinuing hedge accounting.
12.17.1 Extract from FRS102 Section 12.25 to 12.25A.
12.17.2.2 When can/must hedge accounting be discontinued and is it applied retrospectively.
12.17.2.2.1 Fair value hedge and discontinuance rules.
12.17.2.2.2 Cash flow hedge and discontinuance rules.
12.17.2.2.3 Net investment in a foreign operation hedge and discontinuance rules.
12.17.2.2.4 Examples of discontinuance.
12.18 Taxation of fair valuing derivatives – current and deferred tax.
12.19.1 Extract from FRS102-Section 12.25B.
12.20.1 Extracts from FRS 102 section 12.26 – 12.29.
12.20.2.2 Sample Disclosure requirements.
12.20.2.2.1 Extract from accounting policy notes.
12.20.2.2.2 Extract of notes to the financial statements – Financial instruments note disclosures.
12.20.2.2.3 Extract of notes to the financial statements – interest disclosures.
12.20.2.2.3.1 Note: Interest receivable and similar income.
12.20.2.2.3.2 Note: Interest payable and similar expenses.
12.20.2.2.4 – Debtors Disclosures.
12.20.2.2.5 – Creditors disclosures.
12.20.2.2.7 Statement of Comprehensive Income.
12.20.2.2.8 – Statement of Change in Equity.
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12.5 Fair value
12.5.1 Extract from FRS 102 section 12.10 – 12.12
12.10 An entity shall apply the guidance on determining fair value in Appendix to Section 2 Concepts and Pervasive Principles to fair value measurements in accordance with this section as well as for fair value measurements in accordance with Section 11.
12.11 The fair value of a financial liability that is due on demand is not less than the amount payable on demand, discounted from the first date that the amount could be required to be paid.
12.12 An entity shall not include transaction costs in the initial measurement of financial assets and liabilities that will be measured subsequently at fair value through profit or loss.
12.5.2 OmniPro comment
12.5.2.1 The fair value model to utilise
Section 12.10 of FRS 102 states that fair value can be determined first from
- an active market,
- where this is not available a recent price for an identical asset; or
- if this is not available then a valuation technique should be used which makes the most of all market based information.
See further details in relation to the fair value rules in Section 11 at 11.7.2.
12.5.2.2 The fair value of a financial instrument due on demand
As per Section 12.11 of FRS 102 the fair value of an instrument that is repayable on demand is equal to the amount stated on the balance sheet (i.e. the amount of the loan received, less repayments, add interest charged, if any.
12.5.2.3 Transaction costs and fair value
As per Section 12.12 of FRS 102, where an item is held at fair value then all transaction costs must be expensed immediately.
12.5.2.4 Examples of fair valuation techniques for complex instruments
| Type of financial instrument | Possible fair value model to utilise |
| Collective investment fund | If quoted on the stock exchange – the bid price |
| With profit bonds | If quoted on the stock exchange – the bid price. If not quoted or the bank not willing to provide valuation then assessment made as to the likely return on the investment discounted at a government bond rate which will mature at a similar date to the investment itself. |
| Unguaranteed capital | If not quoted or the bank not willing to provide valuation then assessment made as to the likely return on the investment discounted at a government bond rate which will mature at a similar date to the investment itself. |
| Option to purchase a property at a Fixed price | Difference between the market value of the property at period end and the option price. If a liability -not recognized where the entity has the option not to exercise |
| Forward foreign exchange contract | Fair value based on difference between the value of the contract at the period end in foreign currency multiplied by the spot rate plus the forward rates to get to the maturity date of the contract and the value of the contract in foreign currency multiplied by the contract rate. |
| Interest rate swap | Fair value based on the difference between the future interest payments on the loan at the contracted rate and the expected interest rate had no hedge been taken out and related amount over the remaining periods discounted at a rate of interest expected over the remaining period. |
| Complex loan liability (assuming it can be fair valued under Company Law) | Present value the expected future cash flows at a market rate of interest at the period end for a loan to the entity of the same credit rating. Could be done by using a bench mark rate at the date of inception (e.g. Euribor rate) and then adjusting this for the actual Euribor at the period end rate and adjusting for credit risk since the inception of the loan. If the loan repayments are linked to net assets then an estimate would have to be made as to what these will be so that future cash flows can be included in the cash flow statement. |
| Preference shares classified as complex | Present value the future cash flows at a market rate of interest at the period end for a loan to the entity of the same credit rating. Could be done by using a bench mark rate at the date of inception (e.g. Euribor rate) and then adjusting this for the actual Euribor at the period end rate and adjusting for credit risk since the inception of the loan. |
12.5.2.5 Deferred tax and the fair value adjustments
12.5.2.5.1 Deferred tax and fair value adjustments where they relate to trade assets/liabilities
Where the fair value adjustments are trade related (e.g. foreign currency forward contracts, interest rate swaps, fair value on trade asses or liabilities then these adjustments are taxable/tax deductible when recognized in the Profit and loss account). Therefore there is no timing difference hence no deferred tax.
12.5.2.5.2 Deferred tax and fair value adjustments where they relate to non-trade capital assets/liabilities
Where the instrument is a non-trade item e.g. a capital item such as fixed asset investments like collective investment funds; funds whose performance is linked to the stock exchange; with profit bonds, puttable ordinary/preference shares; then deferred tax will arise as the capital tax will only arise for tax purposes when the actual asset is sold, hence the movement in the period is added back for corporation tax purposes. The deferred tax is illustrated at 12.5.2.6. The rate to use will depend on the asset, for certain investments which are greater than one year, the exit tax rate to use would be either 25% or 41% depending on the circumstances however each investment should be assessed on an individual basis.
12.5.2.5.3 Deferred tax where hedge accounting is applied
Where hedge accounting is applied and the movement goes to the OCI and then the fair value reserve. In this case deferred tax is required to be recognized as it will be recognized in the OCI/income statement before it is taxable/tax deductible (as not taxed/tax deductible until it hits the profit and loss account (i.e. when the probable sale arises etc). This has been illustrated at 12.18 and 12.5.2.6.
12.5.2.6 Examples of fair valuing financial instruments where market rates are not available
Examples of complex instruments for entities which therefore need to be fair valued at each period end are; collective investment funds; funds whose performance is linked to the stock exchange; with profit bonds etc. – See 12.3.2.2 for further examples of instruments which are considered complex. The first example below illustrates the requirements where a market rate can be determined and illustrates the accounting requirement required under Sections 12.6 to 12.9 of FRS 102. The other examples below illustrate how fair value can be determined where an active market price is not available and utilizes the cash flow valuation model as permitted in Section 12.10 of FRS 102.
Example 6a: Investments held at fair values – market rates available
A company purchased 2,000 units in a collective investment fund and the market value of the fund can be determined from the stock markets. These were purchased at a price of CU10 per unit plus acquisition costs of CU100. At year end, the bid price of was CU15.
Therefore, as the value of the fund is publicly available on initial recognition the amount to be recognised is CU2,000. The CU100 is ignored and is expensed in line with Section 12.11 of FRS 102. Therefore the movement between the date of acquisition and year end of CU1,000 should be posted as a credit to the P&L so that the year-end value reflects its fair value. Deferred tax will also need to be recognised on the movement which is posted to the tax line in the profit and loss account. Where items are fair valued any transaction costs must be expensed. The tax rate to be used is the sales tax (CGT) rate or alternatively it may be the exit tax rate which we have also assumed for the purposes of the example to be 20%. See illustration of the journals below assuming the CGT/exit tax rate is 20%:
| CU | CU | |
| Dr Financial Assets at Fair Value | 2,000 | |
| Dr Professional fees | 100 | |
| Cr Bank | 2,100 |
Being journal to reflect the purchase of the shares and the related transaction costs
| CU | CU | |
| Dr Financial Assets at Fair Value (CU3,000-CU2,000) | 1,000 | |
| Cr Other Operating Income – FV movement | 1,000 | |
| Dr Deferred Tax in P&L (CU1,000*20%) | 200 | |
| Cr Deferred Tax Liability | 200 |
Being journal to reflect the movement in fair value during the year and the related movement on deferred tax
If the fair value can no longer be reliably measured then the value stated at that date is deemed to be its original cost as per Section 12.8 of FRS 102.
Example 6b: Fair valuing complex financial instruments where no active market available
Journals are as per example above obviously with the different numbers. Deferred tax rate to use will depend on how it will be taxed on exit as per the tax rules i.e. 25% or 41% depending on whether a correct declaration has been made.
Example 6c: Fair valuing complex financial instruments where no active market available
Company A holds the following investment:
- Investment CU1 million linked to fund paying out on maturity capped at 20% (with profit bond)
- Underlying counterparty Bank of Ireland
- Remaining term – 4 years to maturity
- Current fund price +25% (2015 +12%)
- Probability of income being received – very good > 90%
- Absolute return fund, performance positive last 10 years, low volatility in price
- Current yield on BoI 2020 senior bond 0.29% (2015: 37%)
One method that could be used to fair value this fund.
Based on the fact that it has a good history and is nearing maturity, it is likely the capital will be returned in 4 years time and the max 20% will be obtained. These cash flows are then discounted at a rate of a similar bond (BOI in this case) which matures at the same time as the investment (note the government bond rate/yield to maturity could also be used here). This them gives us an indication of the fair value.
| Investment | 1,000,000 | |
| Year to maturity | 4 | |
| 2016 | 2015 | |
| Yield BoI 2020 bond | 0.29% | 1.37% |
| Likely income on maturity | 20% | 8% |
| Discounted Value | 1,186,180 | 1,008,966 |
This is one way to value this investment.
The journals would be the same nature as the first example and deferred tax would need to be considered
Example 6d: Fair valuing complex financial instruments where no active market available
Company A holds the following investment:
- Investment CU1 million linked to basket of stocks
- Underlying counterparty Spanish B rated Bank
- Remaining term – 6 years to maturity
- 2 stocks down > 50%, likelihood of income 0%
- Current yield on Spanish Bank 2022 senior bond 87% (2015 1.45%)
Based on the fact that it has a poor history and is has a while to go to maturity, it is likely the capital will be returned in 6 years time and the entity estimates that no return will be obtained. These cash flows are then discounted at a rate of a similar bond (Spanish bond in this case) which matures at the same time as the investment (note the government bond rate/ yield to maturity could also be used here). This them gives us an indication of the fair value.
| Investment | 1,000,000 | |
| Year to maturity | 6 | |
| 2016 | 2015 | |
| Yield 2022 bond | 0.87% | 1.45% |
| Likely income on maturity | 0% | 0% |
| Discounted Value | 949,353 | 904,140 |
In the following year, things may improve and the fair value may increase.
The journals would be the same nature as the first example and deferred tax would need to be considered
12.5.2.7 Foreign currency forward contracts
Where a forward currency forward contract is entered into, under Section 12 an entity is required to fair value this contract at the reporting date. Where this is not hedged it can create volatility in the profit and loss year on year.
Fair value of such a contract can be determined at the reporting date by assessing the forward contract rate that could be obtained from a third party (e.g. a bank) to hedge on the very same maturity date that the contract that is held matures on (i.e. the difference between what you could theoretically sell the existing forward contract and what you could buy another forward contract at with the very same maturity date and conditions).
e.g. Company A entered into a foreign currency forward contract to sell FC100,000 of foreign currency (FC) at a rate of CU1:FC0.80 on 1 November which matures on 1 February 2014. The year-end date is 31 December. At the year-end date the bank is offering a rate of CU1:FC0.75 for a foreign currency (FC) forward contract which matures on 1 February. In this case the fair value of the forward contract is the difference between the rate of CU1:FC0.80 and CU1:FC0.75.
Realistically the forward rate at period end can be determined from the spot rate at that date and then reviewing the forward quoted rates up to the date of maturity.
12.5.2.7.1 Forward foreign currency contracts and deferred tax where hedge accounting is not applied
As the fair value movement is taxable/tax deductible in the period in which it is recognized in the profit and loss account no deferred tax arises as there is no timing difference. The same point applies for interest rate swaps.
12.5.2.7.2 Accounting for forward foreign currency contracts – non hedging – Examples
Example 7: Forward Contracts
Company A entered into a forward contract to hedge against foreign exchange movements as the company engages in a significant volume of foreign currency (FC) sales. The year end is 31 December. It entered into a forward contract on 1 November to sell CU100,000 of FC in return for CU at a set rate of CU1:FC0.80 maturing on 31 March.
Assume the spot rate at 31 December was CU1:FC0.70.
The forward rate quoted for an FC contract at 31 December by the bank for a contract that matures on 31 March is CU1:FC0.75.
The accounting requirement as a result of entering into this forward contract at 31 December year end assuming it does not meet the conditions for hedge accounting are:
| CU | CU | |
| Dr Foreign Exchange Loss in P&L | 8,333 | |
| Cr Forward Contract Liability | 8,333* |
Being journal to reflect fair value of the forward contract at the year end
*Fair value of the forward contract:
Amount of CU that will be obtained on 31 March at contracted rate of CU1:FC0.80= FC100,000/0.80= CU125,000
Note any FC balances in the balance sheet at 31 December should be retranslated to the year-end spot rate.
Amount of CU that could theoretically be obtained on 31 March at contracted rate of CU1=FC0.75= FC100,000/0.75= CU133,333
Fair value loss at 31 December = CU133,333-CU125,000 – CU8,333
The accounting required on 31 March on settlement is (assuming no movement between year-end date and 31 March and that payment of the difference is initially recognized into foreign exchange loss i.e Cr bank, Dr foreign exchange loss such that the below journal has no impact in the new year as this loss was recognized in prior period):
| CU | CU | |
| Dr Forward Contract Liability | 8,333 | |
| Cr Foreign Exchange Gain | 8,333 |
Being journal to derecognise the liability on the contract maturing
| Or | CU | CU |
| Dr Forward Contract Liability | 8,333 | |
| Cr Bank | 8,333 |
Being journal to derecognise the liability on the contract maturing
Example 8: Foreign currency forward contract to hedge a sale
Company A expects to sell a large volume of goods for FC100,000 on 31 March. The year-end date is 31 December. As a result the company enters into a forward contract to sell FC100,000 to the bank at a rate of CU1:FC0.80 (CU125,000 – FC100,000/0.80).
Assume it does not meet the conditions for hedge accounting.
The forward rate quoted for FC contract at 31 December by the bank for a contract that matures on 31 March is CU1:FC0.75 i.e. could get CU133,333 (FC100,000/0.75).
The accounting required at 31 December is the same as example 1. On the eventual sale here if we assume the spot rate was CU1:FC0.85 the journal would be:
| CU | CU | |
| Dr Bank | 117,647 | |
| Cr Sales (FC100,000/0.85) | 117,647 |
Being journal to reflect sale
| CU | CU | |
|
Dr Bank (CU125,000-CU117,647) |
7,353 | |
| Dr Forward Contract Liability | 8,333 | |
| Cr Foreign Exchange Gain | 15,686 |
Being journal to reflect cash received from the bank on transfer of the FC100,000 at the forward rate of CU7,353 and the reversal of the prior fair value adjustment as the sale is now closed out. Therefore the overall gain in the contract is CU7,353 which is what has ultimately been reflected in the P&L (CU8,333 debit in year 1 – CU7,353 credit on completion and CU8,333 credit on derecognition of the forward contract liability).
Example 9: Foreign currency forward contract to hedge a future purchase
Company A expects to purchase a piece of equipment for FC100,000 on 31 March. The year-end date is 31 December. As a result the company enters into a forward contract to purchase FC100,000 from the bank at a rate of CU1:FC0.80.
Assume it does not meet the conditions for hedge accounting.
The forward rate quoted for the FC contract at 31 December by the bank for a contract that matures on 31 March is CU1:FC0.75.
The accounting at 31 December is as follows:
| CU | CU | |
| Dr Forward Contract Asset | CU8,333 | |
| Cr Foreign Exchange Gain | CU8,333 |
Being journal to reflect fair value of option.
12.5.2.7.3 Accounting for interest rate swaps – non hedging – Examples
Example 10: Interest rate swap – non hedge accounting
Company A gets a loan for CU100,000 at a fixed rate of 5% which is repayable in 5 years.
At the same time Company A enters into an interest rate swap with a third party e.g. another bank for a 5 year period whereby Company A will pay the floating rate to the third party and the third party will pay the fixed rate to Company A. The notional amount hedged is CU100,000. Assume the current average variable interest rate for the year was 6%.
Assume this does not meet the requirements for hedge accounting and that interest is paid every 6 months (no accruals) and there is no credit risk on debt. Assume at the end of year 1 that there was a loss of CU5,000 in the interest rate swap. Note the fair value of an interest rate swap is the difference between what Company A has to pay under the variable rate estimated based on market data (after discounting) for the 5 year period less what they will receive in fixed interest (after discounting). The difference between the two represents the fair value of the interest rate swap.
The accounting entries required at the end of year 1 would result in the following P&L and balance sheet impact. The effect is that an additional CU5,000 hits the profit and loss for the fair value of the swap at the year-end:
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Examples
Example 1: Unguaranteed Capital and variation in return linked to a fund.
Example 2: Collective investment funds.
Example 3: Loan extension option (Section 11.9 (AB) of FRS 102).
Example 5: Variation in return (Section 11.9 (aB) of FRS 102).
Example 6: Prepayment options (Section 11.9 (c) of FRS 102.
Example 6a: Investments held at fair values – market rates available.
Example 6b: Fair valuing complex financial instruments where no active market available.
Example 6c: Fair valuing complex financial instruments where no active market available.
Example 6d: Fair valuing complex financial instruments where no active market available.
Example 8: Foreign currency forward contract to hedge a sale.
Example 9: Foreign currency forward contract to hedge a future purchase.
Example 10: Interest rate swap – non hedge accounting.
Example 11: Hedging in a group context.
Example 13: Hedging with a forward contract where contract is less than the probable sale amount.
Example 14: Hedging part payments.
Example 15: Hedging part payments.
Example 16: Partial term hedging.
Example 17: Portion of a hedging instruments.
Example 19: Forward contract option.
Example 22: Hedge of a foreign currency risk of an unrecognised firm commitment.
Example 23: Forward contract for a probable forecasted sale.
Example 24: Probable forecasted purchase of equipment.
Example 26: Fair valuing an interest rate swap.
Example 27: Hedge of variability in cash flows in a floating rate loan due to interest rate risk.
Example 28: Net investment in a foreign operation (Extracted from Appendix to Section 12 of FRS 102.
Example 29: Discontinuance of a cash flow hedge – forecasted sale/purchase.
Example 30: Cash flow hedge example.
Example 31: Interest rate swap – cash flow hedge accounting.
Example 32: Sample Disclosure Requirements.
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