A Fair Value Hedge That Meets the Requirements Under AASB

question 11

Multiple Choice

A fair value hedge that meets the requirements under AASB 139 for hedge accounting is accounted for in which of the following ways?

• A) Any gain or loss on the hedged item attributable to the hedge risk is recognised in the profit and loss
• B) Any gain or loss from re-measuring the hedging instrument at fair value or its foreign currency amount is recognised as equity
• C) When a firm commitment to acquire an asset is entered into and it is a hedged item, the initial carrying amount of the asset should never include the cumulative change in fair value of the commitment previously recognised in the balance sheet
• D) None of the above describes the correct accounting for a fair value hedge

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Definitions:

Differential Cost

The cost difference between two alternative decisions.

Model 240

A specific version or design of a product, indicated by the model number 240.

Incremental Manufacturing Cost

The additional cost incurred by producing one more unit of a product.

Production Increase

An uptick in the amount of products manufactured by a company over a set period.