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Chapter 11

8.4 Cash flow hedge accounting

At the reporting date, an entity must assess whether the cash flow hedge has been
highly effective. If so, then normal accounting rules are over-ridden and cash flow
hedge accounting rules are applied instead.

Under a cash flow hedge, the hedging instrument is adjusted for the
changes in fair value that have arisen since the inception of the
hedge. No entries are posted in respect of the hedged item.

The gain or loss arising on the hedging instrument will be recorded in
other comprehensive income.

However if the gain or loss on the hedging instrument since the
inception of the hedge is greater than the loss or gain on the hedged
item then the excess gain or loss on the hedging instrument is
recognised in profit or loss.

Illustrations and further practice

Now try TYU question 19 from Chapter 11.

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