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Chapter
25 /
Financial Instruments: Recognition and Measurement
(l AS
39)
285
(d)
It
depends. lAS 39 requires embedded
deriva tives to be accounted for separately if,
and only if, the economic characteristics and
risks of the embedded derivative and the
host contrac t are not closely related and the
comb ined contract is not measured at fair
value with changes in fair value recognized
in profit or loss.
Answer: (d)
18. Which of the following is not a condition for
hedge accounting?
(a) Formal designa tion and documentation of
the hedging relationship and the entity' s risk
management objective and strategy for un–
dertaking the hedge at inception of the
hedging relationship.
(b) The hedge is expected to be highly effective
in achieving offsetting changes in fair value
or cash flows attributable to the hedged risk,
the effectiveness of the hedge can be relia–
bly measured , and the hedge is assessed on
an ongoing basis and determin ed actually to
have been effective.
(c) For cash flow hedges, a forecast transaction
must be highly probable and must present an
exposure to variations in cash flows that
could ultimately affect profit or loss.
(d) The hedge is expected to reduce the entity' s
net exposure to the hedged risk, and the
hedge is determined actually to have re–
duced the net entity-wide exposure to the
hedged risk.
Answer : (d)
19. What is the accounting treatment of the hedging
instrument and the hedged item under fair value
hedge accounting?
(a) The hedging instrument is measured at fair
value, and the hedged item is measured at
fair value with respect to the hedged risk.
Changes in fair value are recognized in
profit or loss.
(b) The hedging instrument is measured at fair
value, and the hedged item is measured at
fair value with respect to the hedged risk.
Changes in fair value are recognized directly
in equity to the extent the hedge is effective.
(c) The hedging instrument is measured at fair
value with changes in fair value recognized
directly in equity to the extent the hedge is
effective. The accounting for the hedged
item is not adjusted.
(d) The hedging instrument is accounted for in
accordance with the accounting require–
ments for the hedged item (i.e., at fair value,
cost or amortized cost, as applicable), if the
hedge is effective.
Answer: (a)
20. What is the accounting treatment of the hedging
instrument and the hedged item under cash flow
hedge accounting?
(a) The hedged item and hedging instrument are
both measured at fair value with respect to
the hedged risk, and changes in fair value
are recognized in profit or loss.
(b) The hedged item and hedging instrument are
both measured at fair value with respect to
the hedged risk, and changes in fair value
are recognized directly in equity.
(c) The hedging instrument is measured at fair
value, with changes in fair value recognized
directly in equity to the extent the hedge is
effec tive. The accounting for the hedged
item is not adj usted.
(d) The hedging instrument is acco unted for in
accordance with the accounting require–
ments for the hedged item (i.e., at fair value,
cost or amortized cost, as applicable), if the
hedge is effective.
Answer: (c)