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Flashcards in Derivatives Hedging Translation Deck (14):
1

How are derivatives recorded?

At cost when acquired re-valued to fair value each period on Balance Sheet.

2

How are unrealized gains/losses on trading securities recorded?

Recorded on income statement

3

How are gains and losses on Available for Sale (AFS) securities recorded?

They are included in Other Comprehensive Income.

4

What is a Fair Value Hedge? How is it recorded?

Fair Value Hedge offsets exposure to changes in the value of a recognized asset/liability or of an unrecognized commitment

Initially recorded on Balance Sheet at Fair Value

Gains/Losses recorded on Income Statement

5

What is a Cash Flow Hedge? How is it recorded?

Cash flow hedges protect from exposure to fluctuations in cash flows.

Initially recorded on Balance Sheet at Fair Value

Gains/Losses going to OCI

Example: A cereal company enters into a futures contract on grain purchases to offset the risk that grain will go up in price.

6

Where are gains and losses on foreign currency hedges recorded?

In Other Comprehensive Income (OCI)

7

What disclosures are required for derivative transactions?

Objectives and Strategies

Context to help investor understand the instrument

Risk Management Policies

Complete List of Hedged Instruments

8

How do transactions denominated in in a currency other than a company's functional currency affect the income statement?

Fluctuations in that currency cause a gain or loss that must be recognized on the income statement as Income from Continuing Operations

9

What causes a Foreign Currency Transaction G/L?

A change in exchange rates between the functional currency and the transaction currency

10

Where are Foreign Currency Transaction G/L recorded?

Income Statement

11

Where are Foreign Currency Translation G/L recorded?

OCI

12

If the Functional Currency equals the Local Currency - what rate is used for translating Assets and Liabilities?

Current Rate as of the Balance Sheet Date

13

If the Functional Currency equals the Local Currency - what rate is used for translating Revenues and Expenses?

Weighted Average Exchange Rate for the year

14

If the Functional Currency equals the Reporting Currency - what Exchangee Rate is used??

Use Weighted Average - Historical Exchange Rates (Inventory and Pre-paid Assets and Property Plant and Equipment) and Current Exchange Rates (Monetary Assets and Liabilities and Inventory @ Market and Trading Securities and Deferred Taxes)