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Accounting for Derivatives

2) To record the closing of the accounting period on 31 December 20X4:

The change in fair value of the forward since the last valuation was a gain of EUR 1,845,000.
Of this amount, a gain of EUR 2,196,000 was considered effective and recorded in equity,
and a loss of EUR 351,000 was considered ineffective and recorded in P&L (in the other
income/losses line). Some accountants recognise the fair value changes on the forward
points component of the FX forward in the interest income/expense line of P&L as
forward points represent an interest rate differential.

Fair Value of Derivative (Asset)

Other Income and Losses (P&L)
Cash flow Hedges (Equity)

1,845,000
351,000

2,196,000

3) To record the sale agreement on 31 March 20X5:

The sale agreement was recorded at the spot rate ruling on the date the sales were recognised
(1.2950). Therefore, the sales EUR amount was EUR 77,220,000 (= 100 million/1.2950):

Accounts Receivable (Asset)

Sales (P&L)

77,220,000

77,220,000

The change in the fair value of the FX forward since the last valuation was a gain of EUR
1,202,000. Of this amount, a gain of EUR 1,519,000 was considered effective and recorded
in equity, and a loss of EUR 317,000 was considered ineffective and recorded in P&L:

Fair Value of Derivative (Asset)

Other Income and Losses (P&L)
Cash flow Hedges (Equity)

1,202,000
317,000

1,519,000

The recognition of the sales transaction in P&L caused the deferred hedge results accumulated in equity to be reclassified to P&L:

Cash flow Hedges (Equity)

Sales (P&L)

3,715,000

3,715,000

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):