60

Accounting for Derivatives

4) To record the settlement of the sale on 30 June 20X5:

The receivable was revalued at the spot rate prevailing on this date, showing a loss of EUR
1,462,000 (= 100 million/1.3200 100 million/1.2950)

FX loss on Accounts Receivable (P&L)

Accounts Receivable (Asset)

1,462,000

1,462,000

The USD payment from the receivable was exchanged for EUR as soon as it was received.
The spot rate on payment date was 1.32, so the USD 100 million were exchanged for EUR
75,758,000 (= 100 million/1.32)

Cash (Asset)
Accounts Receivable (Asset)

75,758,000

75,758,000

The change in the fair value of the FX forward since the last valuation was a gain of EUR
1,195,000.

Fair Value of Derivative (Asset)

Gain on derivative (P&L)

1,195,000

1,195,000

The settlement of the FX forward resulted in the receipt of EUR 4,242,000 (= 100
million* (1/1.251/1.32)).

Cash (Asset)
Fair Value of Derivative (Asset)

4,242,000

4,242,000

It can be seen that with the hedge ABC locked-in EUR 80,000,000 proceeds from the
USD sale. Without the hedge, the proceeds from the sale would have been EUR 4,242,000
lower. The inclusion of the forward points in the hedge relationship caused the expected
deterioration of the exchange rate implied by the forward points to end up within EBITDA,
and not in the other gains and losses line, as shown in Figure 3.3.