Page 98 - F3 Integrated Workbook STUDENT 2019
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Chapter 4
Example 7
Belle Co was using hedge accounting last year to record the movement in
value of some foreign currency denominated inventory (the hedged item) and
an associated futures contract (the hedging instrument).
In the last accounting period the fair value of the inventory increased in from
$80,500 to $82,000, and the fair value of the futures contract changed from
$81,100 to $79,900.
What was the quantified effectiveness of this hedge, in accordance with
the provisions of IAS 39?
A 80.0%
B 97.4%
C 99.3%
D 101.5%
Solution
The answer is (A).
Under IAS 39, the effectiveness of the hedge was calculated by comparing the
movement in the value of the hedged item and the movement in the value of
the hedging instrument.
i.e. a movement of ($82,000 – $80,500 =) $1,500 in the fair value of the
hedged item and a movement of ($81,100 – $79,900 =) $1,200 in the fair
value of the hedging instrument.
Therefore effectiveness here is 1,200/1,500 = 80.0%
(or alternatively 1,500/1,200 = 125%).
90
