Derivatives: Derivatives are some financial instruments which are meant for managing risk and safeguard the risk created by other financial instruments. These financial instruments derive the values from the future value of underlying security or index. Some examples of derivatives are forward contracts, interest rate swaps, futures, and options.
Hedging: This is the business deal entered into, by a company to produce exposure or coverage over the exposure caused by the existing deal. In simple terms, this is the transaction which produces gains to cover the losses produced by existing transaction.
Fair value hedge: If the company uses any derivative to cover the risk due to fair value changes of asset, liability, or a commitment, the derivative is classified as fair value hedge.
To explain: Whether the gains and losses on fair value hedge should be recorded immediately, or should be included in the gains and losses on the item being hedged
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Chapter A Solutions
Intermediate Accounting, 10 Ed
- choose the correct answer: Equity security acquired for trading should be measured at reporting date a. cost, being the purchase price b. cost, being the purchase price plus transaction costs c. fair value, with change in FV taken through profit or loss. d. fair value, with change in FV taken through other comprehensive income.arrow_forwardWhen are losses in noncurrent security investments recognized?arrow_forwardThe account Unrealized Gain (Loss) on Trading Investments should be included on thearrow_forward
- Which of the following is measured at fair value with fair value changes recognized in profit or loss? a. held to maturity investments b. financial assets designated at FVPL c. FVOCI d. all of thesearrow_forwardWhat are the key factors that can lead to an under/overstatement of the investments balance?arrow_forwardWhat is the quantitative disclosure of lessor?arrow_forward
- When using the fair value method, we adjust the reported amount of the investment for changes in fair value after its acquisition. How is the change in fair value reflected in the income statement?arrow_forwardWhen using the fair value method, we adjust the reported amount of the investment for changes in fair value after its acquisition. If the security is classified as available-for-sale, how do we report unrealized holding gains and losses?arrow_forwardIs unrealized loss deducted in marketable equity securities held as financial asset at fair value through other comprehensive income?arrow_forward
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