3295216
Description
Mind Map by meyer cohn, updated more than 1 year ago
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Created by meyer cohn
about 9 years ago
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Foreign exchange rates
- Reporting FOREX
transactions in functional
currency
- Monetary
items (MI)
- All current assets
(excl. inventory)
& liabilities;
LT-borrowings;
Debentures;
Deferred tax;
Some employee
benefits; Div.
payable;
Convertible pref.
shares (into
debentures);
Convertible
debentures (into
redeemable pref.
shares)
- All current assets
(excl. inventory)
& liabilities;
LT-borrowings;
Debentures;
Deferred tax;
Some employee
benefits; Div.
payable;
Convertible pref.
shares (into
debentures);
Convertible
debentures (into
redeemable pref.
shares)
- Non-monetary
items (NMI)
- Inventories; PPE; Investment
in ordinary shares; Ordinary
shares; PMTS in Advance;
Goodwill; Intangible assets;
Reserves; Convertible pref.
shares & debentures
(convert to ordinary shares)
- Inventories; PPE; Investment
in ordinary shares; Ordinary
shares; PMTS in Advance;
Goodwill; Intangible assets;
Reserves; Convertible pref.
shares & debentures
(convert to ordinary shares)
- Uncovered
transactions: recorded
in functional currency
using spot rate at
transaction date
- Transaction date:
Date when risks &
rewards of ownership
are transferred to
purchaser
- Monetary
items (MI)
- Covered
transactions
- Firm commitment =
binding agreement for
the exchange of a
specified quantity of
resources at specific
price & future date
- Forecast transaction =
uncommitted but
anticipated future
transaction
- Hedging instrument = designated derivative (hedge of
risk of change in forex rates only); OR = designated
non-derivative fin. asset; OR = non-derivative fin.
liability whose fair value / CFj are expected to offset
changes in the FV / CFj of a desinated hedged item
- Firm commitment =
binding agreement for
the exchange of a
specified quantity of
resources at specific
price & future date
- Uncovered
transactions
- At spot rate t.i.a: >MI
recorded at closing spot
rate at year end [ gives
rise to FOREX G/L ];
>NMI recorded at spot
rate always
- At spot rate t.i.a: >MI
recorded at closing spot
rate at year end [ gives
rise to FOREX G/L ];
>NMI recorded at spot
rate always
- Hedge
accounting
- Criteria to hedge:
(Only if ALL are met)
- > At inception of hedge item there is a formal designation &
documentation of the hedging relationship; > Hedge is expected to be
highly effective; > For CFj hedges, a forecast transaction MUST be
highly probable & present an exposure to variations in cash flows that
effect P/L; > Effectiveness of hedge reliably measured; > Hedge is
assessed on an ongoing basis.
- > At inception of hedge item there is a formal designation &
documentation of the hedging relationship; > Hedge is expected to be
highly effective; > For CFj hedges, a forecast transaction MUST be
highly probable & present an exposure to variations in cash flows that
effect P/L; > Effectiveness of hedge reliably measured; > Hedge is
assessed on an ongoing basis.
- Fair value
hedge
- Underlying
transaction
present
- Steps to
account
- 1. Entering into FEC = No
transaction recorded; 2. IF YR/END
AFTER SETTLEMENT = G/L on
settlement of FEC the diff between
MI recorded at spot rate on
settlement date & amount
paid/received ito FEC; 3. IF YR/END
IS BEFORE SETTLEMENT = G/L on
FEC is diff between contracted
forward rate & contract forward
rate of Similar FEC for remaining
period until maturity; 4. IF FEC IS
RENEWED OR ROLLED FORWARD =
on maturity date recognise G/L on
FEC as that between original
forward rate & spot rate at that
date.
- 1. Entering into FEC = No
transaction recorded; 2. IF YR/END
AFTER SETTLEMENT = G/L on
settlement of FEC the diff between
MI recorded at spot rate on
settlement date & amount
paid/received ito FEC; 3. IF YR/END
IS BEFORE SETTLEMENT = G/L on
FEC is diff between contracted
forward rate & contract forward
rate of Similar FEC for remaining
period until maturity; 4. IF FEC IS
RENEWED OR ROLLED FORWARD =
on maturity date recognise G/L on
FEC as that between original
forward rate & spot rate at that
date.
- Underlying
transaction
present
- Cash flow
hedge
- No underlying
transaction
- Steps to
account
- 1. Entering into FEC = No transaction
recorded; 2. When UT is recorded OR
YR/END reached, value of FEC = Foreign
currency X [ Contracted forward rate less
similar FEC on remaining period rate ] ; 3.
Decide IF hedge effective, recognise G/L
in SCE, IF ineffective, recognise G/L in P/L
- IF recognised
in SCE :
- Fin. asset/liability recognised:
>G/L recogn. directly in Equity is
reclassified to I/S in period the A/L
affects I/S ; > any unrecoverable
amount is recogn. in I/S if entity
expects all/portion of loss recogn.
in E will not be recovered in
future.
- Non-financial
asset/liability or
firm commitment:
>G/L recogn.
directly in Equity
is reclassified to
I/S in period the
A/L affects I/S ; OR
reclassify G/L to
asset/ liability so
covered.
- Fin. asset/liability recognised:
>G/L recogn. directly in Equity is
reclassified to I/S in period the A/L
affects I/S ; > any unrecoverable
amount is recogn. in I/S if entity
expects all/portion of loss recogn.
in E will not be recovered in
future.
- IF recognised
in SCE :
- 1. Entering into FEC = No transaction
recorded; 2. When UT is recorded OR
YR/END reached, value of FEC = Foreign
currency X [ Contracted forward rate less
similar FEC on remaining period rate ] ; 3.
Decide IF hedge effective, recognise G/L
in SCE, IF ineffective, recognise G/L in P/L
- No underlying
transaction
- Criteria to hedge:
(Only if ALL are met)
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