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Chapter 4

The change in the fair value of the expected future cash flows on the hedged
item (which is not recognised in the financial statements) is calculated as:

$
At 30 April 20X2 9,938,000
At 30 September 20X2 9,186,000
–––––––––
Loss 752,000

As this change in fair value is less than the gain on the futures contracts, the
hedge is not fully effective and only $752,000 of the gain on the forward
should be recognised in other comprehensive income (OCI).

The remainder should be recognised in profit or loss (P&L):

Dr Derivative (Financial asset) $864,000
Cr OCI $752,000

Cr P&L $112,000
Note that the hedge is still highly effective (and hence hedge accounting
should continue to be used):

$864,000/$752,000 = 115% which is within the 80% – 125% range.

After the financial year end, and up to the date of sale (31 October 20X2)

The gain on the futures contracts up to the date of sale is calculated as:
$
Forward value of contract at 30 September 20X2
(24,000 × $352) = 8,448,000
Forward value of contract at 31 October 20X2
(24,000 × $350) = 8,400,000
–––––––––
Gain on contract 48,000
The change in the fair value of the expected future cash flows on the hedged
item is calculated as:
$
At 30 September 20X2 9,186,000
At 31 October 20X2 9,136,000
–––––––––
Loss 50,000

The hedge is still highly effective: $48,000/$50,000 = 96%

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