deegan5e sm ch35

8/20/2019 Deegan5e Sm Ch35

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PART 9: FOREIGN CURRENCY

Chapter 35

Accounting for foreign currency transactions

35.1 It is necessary to translate eca!se i" t#e transactions $ere not %eno&inate% in a sin'le (resentation c!rrency) s!c# as A!stralian %ollars) t#en t#e "inancial state&ents co!l% e &a%e*!( o" acco!nts t#at $ere %eno&inate% in n!&ero!s c!rrencies. +!c# "inancial state&ents$o!l% e ,ery %i""ic!lt to !n%erstan%.

35.- At alance %ate also re"erre% to as re(ortin' %ate/ all "orei'n c!rrency &onetary assets an%&onetary liailities &!st e translate% to A!stralian %ollar e0!i,alents ass!&e% to e t#e"!nctional c!rrency/ !sin' t#e ec#an'e rate in (lace at alance %ate. A(art "ro& a li&ite%n!&er o" cases "or ea&(le) transactions relatin' to 0!ali"yin' assets an% 'ains an% losses

(ertainin' to certain #e%'es/) 'ains or losses on translatin' t#e "orei'n c!rrency &onetaryite&s &!st e treate% as eit#er e(enses or inco&e o" t#e re(ortin' (erio%.

35.3 2#en a transaction occ!rs t#at is %eno&inate% in a "orei'n c!rrency) t#at transaction s#o!l%initially e translate% at t#e ec#an'e rate in (lace at t#e %ate o" t#e transaction also re"erre%to as t#e s(ot rate4/.

35. I" t#e ec#an'e rate &o,es a'ainst t#e A!stralian %ollar an% t#e %et is o!tstan%in' t#en t#is$ill res!lt in an increase in t#e A!stralian %ollar e0!i,alent o" t#e a&o!nt t#at is (ayale. T#isincrease is to e treate% as an e(ense. It is not to e a%6!ste% a'ainst t#e cost o" t#ein,entory.

35.5 AA+7 1-3 (ro,i%es '!i%ance in relation to 0!ali"yin' assets. T#e stan%ar% relates to

orro$in' costs) $#ic# are roa%ly %e"ine% $it#in it as interest an% ot#er costs inc!rre% y anentity in connection $it# t#e orro$in' o" "!n%s. Ec#an'e rate %i""erences 'enerate% inrelation to o!tstan%in' loans $o!l% e consi%ere% to e orro$in' costs.

A 0!ali"yin' asset4 is %e"ine% in AA+7 1-3 as an asset t#at necessarily ta8es a s!stantial (erio% o" ti&e to 'et rea%y "or its inten%e% !se or sale. Accor%in' to (ara'ra(# o" AA+71-3:

Ea&(les o" 0!ali"yin' assets are in,entories t#at re0!ire a s!stantial (erio% o" ti&eto rin' t#e& to a saleale con%ition) &an!"act!rin' (lants) (o$er 'eneration"acilities an% in,est&ent (ro(erties. Ot#er in,est&ents) an% t#ose in,entories t#at are

ro!tinely &an!"act!re% or ot#er$ise (ro%!ce% in lar'e 0!antities on a re(etiti,e asiso,er a s#ort (erio% o" ti&e) are not 0!ali"yin' assets. Assets t#at are rea%y "or t#eir inten%e% !se or sale $#en ac0!ire% also are not 0!ali"yin' assets.

AA+7 1-3 re0!ires t#at orro$in' costs $#ic# incl!%e t#e ec#an'e %i""erences/ t#at relateto 0!ali"yin' assets s#o!l% e incl!%e% in t#e cost o" ac0!isition o" t#e asset) to t#e etentt#at t#ey arise e"ore t#e assets cease to e 0!ali"yin' assets. Only t#ose %i""erencesocc!rrin' before an asset ceases to e a 0!ali"yin' asset s#o!l% e incl!%e%. T#e ec#an'e%i""erences incl!%e% in t#e cost o" 0!ali"yin' assets "or t#e "inancial year are t#e a&o!nts t#at$o!l% ot#er$ise #a,e een incl!%e% $it#in t#e (erio%4s (ro"it or loss. T#e a&o!nt ca(italise%as t#e cost o" t#e asset s#all not ecee% its reco,erale a&o!nt. I" ec#an'e %i""erences ca!se

t#e reco,erale a&o!nt to e ecee%e%) t#e ecess s#o!l% e $ritten*o"" to t#e inco&estate&ent. Para'ra(#s 11 an% 1- o" AA+7 1-3 state:

+ol!tions an!al t;a Australian Financial Accounting 5;e y Crai'


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11. 7orro$in' costs t#at are %irectly attri!tale to t#e ac0!isition) constr!ction or (ro%!ction o" a 0!ali"yin' asset s#all e ca(italise% as (art o" t#e cost o" t#at asset.T#e a&o!nt o" orro$in' costs eli'ile "or ca(italisation s#all e %eter&ine% inaccor%ance $it# t#is +tan%ar%.

1-. Un%er t#e allo$e% alternati,e treat&ent) orro$in' costs t#at are %irectly

attri!tale to t#e ac0!isition) constr!ction or (ro%!ction o" an asset are incl!%e% int#e cost o" t#at asset. +!c# orro$in' costs are ca(italise% as (art o" t#e cost o" t#easset $#en it is (roale t#at t#ey $ill res!lt in "!t!re econo&ic ene"its to t#e entityan% t#e costs can e &eas!re% relialy. Ot#er orro$in' costs are reco'nise% as ane(ense in t#e (erio% in $#ic# t#ey are inc!rre%.

As in%icate% ao,e) $#ere a 0!ali"yin' asset is not in,ol,e%) t#ere is a 'eneral r!le t#atec#an'e %i""erence relatin' to &onetary ite&s s#all e ro!'#t to acco!nt in t#e inco&estate&ent in t#e (erio% in $#ic# t#e ec#an'e rate c#an'es.

35. 2e &!st re"er to AA+7 139 "or t#e r!les (ertainin' to acco!ntin' "or #e%'in' transactions.>e%'in' re"ers to actions ta8en) $#et#er y enterin' into a "orei'n c!rrency contract or ot#er$ise) $it# t#e o6ecti,e o" &iti'atin' (ossile a%,erse "inancial e""ects o" &o,e&ents inec#an'e rates.

To &ini&ise t#e ris8 associate% $it# "orei'n c!rrency &onetary ite&s) an entity &ay enter a#e%'e contract. 7y enterin' into an a'ree&ent $#ic# ta8es a (osition o((osite to t#e ori'inaltransaction) an entity can &ini&ise its e(os!re to "orei'n c!rrency &o,e&ents. For ea&(le)i" an entity is re0!ire% to (ay an o!tstan%in' oli'ation t#at is %eno&inate% in a "orei'nc!rrency) t#en it can eli&inate its ris8 to "orei'n c!rrency &o,e&ents y enterin' ana'ree&ent $it# a t#ir% (arty) $it# t#at t#ir% (arty a'reein' to s!((ly t#e "orei'n c!rrency at a

(re%eter&ine% rate. For ea&(le) i" t#e entity #a% (!rc#ase% so&e in,entory at a cost o"

U+?1 &illion $#en t#e ec#an'e rate $as A?1.@@ [email protected]/ "or $#ic# (ay&ent $as not%!e "or one &ont#) t#en it can eli&inate its ris8 y enterin' a "or$ar%*rate a'ree&ent $it# a

an8 t#is $o!l% e a #e%'in' arran'e&ent4/ in $#ic# t#e an8 $ill a'ree to s!((lyU+?1 &illion in one &ont#4s ti&e at a "or$ar% rate o" A?1.@@ [email protected]. T#is &eans t#e

entity #as loc8e% t#e (rice in to ?1 @@@ @@@ ÷ @.- A?1 1- 9@3. T#at is) re'ar%less o"

$#at #a((ens to ec#an'e rates) t#e entity $ill (ay A?1 1- 9@3 "or t#e 'oo%s an% t#ein,entory $o!l% e t#e #e%'e% ite&/. T#e entity $ill #a,e a "orei'n c!rrency recei,ale) an%a "orei'n c!rrency (ayale "or t#e sa&e a&o!nt) %eno&inate% in t#e sa&e c!rrency. Any'ains or losses on one $ill e o""set y 'ains or losses on t#e ot#er. I" t#e ec#an'e ratei&(ro,es "ro& t#e (ers(ecti,e o" t#e A!stralian %ollar) t#e entity $ill recor% a 'ain on t#eliaility $it# t#e o,erseas s!((lier) $#ic# $ill e "!lly o""set y t#e loss recor%e% on t#e

a'ree&ent $it# t#e an8 %!e to a re%!ction in t#e ,al!e o" t#e "orei'n c!rrency recei,ale/.I" t#e ,al!e o" t#e A!stralian %ollar %eclines t#en t#e o((osite e""ects $ill occ!r.

35.B A "orei'n c!rrency &onetary ite& is consi%ere% to e (er"ectly #e%'e% i" t#e 'ains or losseson t#e #e%'e contract (er#a(s a "or$ar%*rate a'ree&ent $it# a an8/ o""set t#e losses or 'ains on t#e (ri&ary transaction s!c# as a (!rc#ase or sale o" in,entory to an o,erseas

(arty/. For ea&(le) i" a re(ortin' entity #a% sol% U+?1@@ @@@ to a U+ c!sto&er an% also#a% a "or$ar%*ec#an'e*rate a'ree&ent $it# t#e an8 in $#ic# t#e an8 a'ree% to !yU+?1@@ @@@ "ro& t#e entity at a (re%eter&ine% rate) t#en t#e o,erseas sale contract $o!l%

e consi%ere% to e (er"ectly #e%'e%.

35. a/ I" t#e #e%'e contract is entere% into prior to the date of a sale or purchase) an% i" itrelates to a (artic!lar (!rc#ase or sale t#at is) it is a s(eci"ic #e%'e $#ic# $o!l% eo" t#e "or& o" a cas#*"lo$ #e%'e/) t#en any 'ains or costs at t#e %ate o" enterin' t#e



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#e%'e t#ese $o!l% incl!%e ro8era'e "ees) an% any %isco!nts or (re&i!&s on#e%'in' contracts %!e to %i""erences in t#e s(ot rate an% t#e "or$ar% rate $#en t#e#e%'in' contract $as entere% into/) an% any "!rt#er 'ains or losses !( to and including the date of purchase or sale s#all e a%6!ste% a'ainst t#e sales or (!rc#ase

(rice o" t#e 'oo%s or ser,ices. +!se0!ent 'ains or losses are t#en ta8en to t#e (ro"itan% loss in t#e (erio% in $#ic# t#e ec#an'e rate "l!ct!ation occ!rs.

/ I" t#e #e%'e %oes not satis"y t#e re0!ire&ents "or a cas#*"lo$ #e%'e as sti(!late% y (ara'ra(# o" AA+7 139) t#en any cost or 'ains o" enterin' t#e #e%'e s#all e%e"erre% an% a&ortise% o,er t#e li"e o" t#e #e%'e) an% any "orei'n ec#an'e 'ains or losses s#all e incl!%e% in t#e (ro"it or loss in t#e (erio% in $#ic# t#ey arise.

35.9 A "orei'n c!rrency s$a( arises $#ere t#e oli'ation relate% to a loan %eno&inate% in onec!rrency is s$a((e% "or a loan %eno&inate% in anot#er c!rrency.

For ea&(le) i" a (artic!lar or'anisation #as a n!&er o" recei,ales t#at are %eno&inate% ina "orei'n c!rrency) t#en c#an'es in s(ot rates &ay (otentially create siDeale "orei'n c!rrency'ains) or siDeale "orei'n c!rrency losses. I" t#at sa&e or'anisation is ale to con,ert so&e o" its %o&estic loans into "orei'n c!rrency loans) o" t#e sa&e %eno&ination as its recei,ales)t#en it $ill e ale to e""ecti,ely ins!late or #e%'e itsel" "ro& t#e e""ects o" c#an'es in s(otrates. +!c# an or'anisation &ay see8 to "in% anot#er entity t#at is (re(are% to s$a( its"orei'n c!rrency loans "or t#e or'anisation4s %o&estic loans. T#at is) i" $e #a,e recei,alesan% (ayales t#at are ot# %eno&inate% in anot#er (artic!lar "orei'n c!rrency) t#en c#an'esin t#e s(ot rates $ill create 'ains on one) !t losses on t#e ot#er. To t#e etent t#at t#erecei,ales an% (ayales are "or t#e sa&e a&o!nt an% %eno&inate% in t#e sa&e c!rrency) t#elosses on one &onetary ite& (er#a(s t#e "orei'n c!rrency (ayale/ $ill e o""set y 'ains ont#e ot#er &onetary ite& (er#a(s t#e "orei'n c!rrency recei,ale/.

35.1@ 5 !ne -@@


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35.11 1 !ly -@@


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35.1 i/ To recor% t#e (!rc#ase o" in,entory on 1 arc# -@@.

1 arc# -@@


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3@ !ne -@@


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1 A!'!st -@@


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i/ To recor% t#e #e%'e contract on 1 arc# -@@

1 arc# -@@


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To increase t#e cost o" t#e in,entory y t#e %e"erre% %isco!nt on t#e "or$ar%*ratecontract) $#ic# (!rs!ant to AA+7 1-1 #as een trans"erre% to e0!ity !ntil t#e %ate o"

(!rc#ase.

,/ To recor% t#e "orei'n ec#an'e loss on t#e acco!nt (ayale to 3@ !ne -@@

3@ !ne -@@


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,iii/ To re,ise t#e ,al!e o" t#e "orei'n c!rrency recei,ale

1 A!'!st -@@


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- BBB BB 5 @@@ @@@ J @.

ii/ To recor% t#e "or$ar%*rate contract entere% into on 1 !ne -@@

1 !ne -@@


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3@ !ne -@@

e%'e %isco!nt e(ense 1@ Cr


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T#e co&(any $ill (ro,i%e t#e an8 $it# U+?5 @@@ @@@ to settle t#e "or$ar%*rateco&&it&ent an% t#e an8 $ill con,ert t#e ?U+ into A!stralian %ollars at t#e a'ree%"or$ar% rate o" A?1 U+?9@ t#erey) (ro,i%in' A?5 555 55 to Platy(!s t%.

35.1B Acco!ntin' entries in t#e oo8s o" Crescent t%.

1 !ly -@@


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Crescent initially #as to &a8e t#e (ay&ent to t#e U+ co&(any "or t#e "!n%s it orro$e%.T#at is) e,en in t#e (resence o" t#e a'ree&ent $it# Pl!&&er) Crescent $ill still co&(ly $it#its contract!al co&&it&ent $it# t#e o,erseas ca(ital s!((lier. >o$e,er) Pl!&&er #as a'ree%to ta8e res(onsiility "or t#e o,erseas loan) $#ilst Crescent t% a'ree% to ta8e res(onsiility"or Pl!&&er t%4s %o&estic loan. T#e interest (ay&ent on t#e %o&estic loan is ?1 B5 @@@

t#at is) ?1 B5@ @@@ H 1@/. Crescent t% $ill (ay Pl!&&er t% ?1@ B1) s!c# t#atCrescent t%4s total interest e(ense ?1 B1 - ?1@ B1/ is t#at $#ic# is (ayale on t#e%o&estic loan ?1 B5 @@@/Kt#e loan "or $#ic# it #as a'ree% to ta8e res(onsiility.

In t#e oo8s o" Pl!&&er t%.

1 !ly -@@


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Cas# "lo$s associate% $it# o,erseas loan: 15 @@@ @@@ H / J @.B@ 1 B1 -A&o!nt to e trans"erre% "ro& Crescent toPl!&&et 1@ B1

35.1 a/ i/ 3@ A(ril -@@

L?1@@ @@@.

>L?1@@ @@@ ÷ .59 A?11 1.

>L?1@@ @@@ ÷ .5@ A?11 B.B1

1-3.3-

As at t#e re(ortin' %ate $e $o!l% #a,e an o!tstan%in' liaility o" >L?1@@ @@@. T#is $ill nee% to e state% at t#e s(ot rate at 3@ !ne -@@ an%t#e ec#an'e %i""erence ta8en to t#e inco&e state&ent.

L?1@@ @@@ ÷ .59 A?11 1.

>L?1@@ @@@÷

.5@ A?11 B.B1

1-3.3-

i,/ 31 !ly -@@



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3@ ay -@@


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1 an!ary -@@


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3@ !ne -@@

e%'e %isco!nt e(ense 1@- 5Cr


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i,/ To trans"er t#e %e"erre% #e%'e %isco!nt to in,entory on t#e %ate o" (!rc#ase


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i/ To recor% settle&ent o" t#e "orei'n c!rrency contract.


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As t#e (!rc#ase occ!rre% (re,io!sly) 'ains an% losses are ta8en %irectly to t#einco&e state&ent. T#ey are only %e"erre% !( !ntil t#e %ate o" (!rc#ase.

,ii/ To recor% t#e "orei'n ec#an'e loss on acco!nts (ayale et$een3@ !ne -@@ an% 1 A!'!st -@@


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1. o!rnal entries "or (!rc#ase o" &ac#inery.

T#e (!rc#ase re(resents an ac0!isition o" a 0!ali"yin' asset. It is ass!&e% t#at t#easset is ein' constr!cte% et$een (!rc#ase %ate an% %eli,ery %ate. In accor%ance$it# AA+7 1-3) ec#an'e %i""erences arisin' in res(ect o" a 0!ali"yin' asset s#o!l%

e incl!%e% in t#e cost o" ac0!isition o" t#e asset to t#e etent t#at t#is %oes not res!ltin t#e asset4s carryin' a&o!nt ecee%in' its reco,erale a&o!nt.

i/ 3@ A(ril -@@


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1-5 @@@ J @.B 1 919 9-

,/ 3@ !ne -@@9

o$e,er) t#ey eactly o""set t#e ec#an'e (ro"it or loss onre,al!ation o" t#e relate% cre%itor.


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7ein' t#e re,al!ation o" t#e "or$ar%*ec#an'e contract at year en% to


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35.-@ / >e%'es

7roa%ly s(ea8in') t#ere are t#ree ty(es o" #e%'es i%enti"ie% $it#in AA+7 139K"air ,al!e#e%'es) cas# "lo$ #e%'es) an% #e%'es o" net in,est&ents in "orei'n o(erations. As (ara'ra(# o" AA+7 139 states:

>e%'in' relations#i(s are o" t#ree ty(es:a/ "air ,al!e #e%'e: a #e%'e o" t#e e(os!re to c#an'es in "air ,al!e o" a reco'nise%

asset or liaility or an !nreco'nise% "ir& co&&it&ent) or an i%enti"ie% (ortion o" s!c# an asset) liaility) or "ir& co&&it&ent) t#at is attri!tale to a (artic!lar ris8 an% co!l% a""ect (ro"it or lossQ

/ cas# "lo$ #e%'e: a #e%'e o" t#e e(os!re to ,ariaility in cas# "lo$s t#at i/ isattri!tale to a (artic!lar ris8 associate% $it# a reco'nise% asset or liaility s!c# asall or so&e "!t!re interest (ay&ents on ,ariale rate %et/ or a #i'#ly (roale"orecast transaction an% ii/ co!l% a""ect (ro"it or lossQ an%

c/ #e%'e o" a net in,est&ent in a "orei'n o(eration as %e"ine% in AA+7 1-1.

T#e &ost co&&on "or&s o" #e%'es are "air ,al!e #e%'es an% cas# "lo$ #e%'es. Fair ,al!e#e%'es $o!l% e !se% to #e%'e t#e ,al!e o" (artic!lar assets or liailitiesK"or ea&(le) to#e%'e t#e ,al!e o" a s#are (ort"olio an% t#e ,al!e o" a s#are (ort"olio &i'#t e #e%'e% yac0!irin' s#are (rice in%e +PI/ "!t!res as a #e%'in' instr!&ent/. A cas# "lo$ #e%'e on t#eot#er #an% $o!l% e !se% to #e%'e a "!t!re e(ecte% cas# "lo$K"or ea&(le to #e%'e ana&o!nt t#at is (ayale to a "orei'n s!((lier $#ere t#e a&o!nt is %eno&inate% in U+ %ollars.

7eca!se C#a(ter 35 concentrates on #e%'es associate% $it# cas# "lo$s (ertainin' totransaction %eno&inate% in a "orei'n c!rrency) cas# "lo$ #e%'es are t#e "or& o" #e%'e t#at are%escrie% in %etail. For a cas# "lo$ #e%'e) AA+7 139 allo$s certain costs to e %e"erre% toe0!ity) rat#er ein' ta8en to (ro"it an% loss) to t#e etent t#at certain re0!ire&ents aresatis"ie%. T#ese re0!ire&ents are sti(!late% at (ara'ra(# o" AA+7 139) $#ic# states:

A #e%'in' relations#i( 0!ali"ies "or #e%'e acco!ntin' !n%er (ara'ra(#s 9=1@- i") an%only i") all o" t#e "ollo$in' con%itions are &et.a/ At t#e ince(tion o" t#e #e%'e t#ere is "or&al %esi'nation an% %oc!&entation o" t#e

#e%'in' relations#i( an% t#e entity4s ris8 &ana'e&ent o6ecti,e an% strate'y "or !n%erta8in' t#e #e%'e. T#at %oc!&entation s#all incl!%e i%enti"ication o" t#e#e%'in' instr!&ent) t#e #e%'e% ite& or transaction) t#e nat!re o" t#e ris8 ein'#e%'e% an% #o$ t#e entity $ill assess t#e #e%'in' instr!&ent4s e""ecti,eness ino""settin' t#e e(os!re to c#an'es in t#e #e%'e% ite&4s "air ,al!e or cas# "lo$sattri!tale to t#e #e%'e% ris8.

/ T#e #e%'e is e(ecte% to e #i'#ly e""ecti,e see A((en%i A (ara'ra(#s AG1@5=

AG113/ in ac#ie,in' o""settin' c#an'es in "air ,al!e or cas# "lo$s attri!tale to t#e#e%'e% ris8) consistently $it# t#e ori'inally %oc!&ente% ris8 &ana'e&ent strate'y"or t#at (artic!lar #e%'in' relations#i(.

c/ For cas# "lo$ #e%'es) a "orecast transaction t#at is t#e s!6ect o" t#e #e%'e &!st e#i'#ly (roale an% &!st (resent an e(os!re to ,ariations in cas# "lo$s t#at co!l%!lti&ately a""ect (ro"it or loss.

%/ T#e e""ecti,eness o" t#e #e%'e can e relialy &eas!re%) t#at is) t#e "air ,al!e or cas# "lo$s o" t#e #e%'e% ite& t#at are attri!tale to t#e #e%'e% ris8 an% t#e "air ,al!e o" t#e #e%'in' instr!&ent can e relialy &eas!re% see (ara'ra(#s an% Ban% A((en%i A (ara'ra(#s AG@ an% AG1 "or '!i%ance on %eter&inin' "air ,al!e/.

e/ T#e #e%'e is assesse% on an on'oin' asis an% %eter&ine% act!ally to #a,e een#i'#ly e""ecti,e t#ro!'#o!t t#e re(ortin' (erio%s "or $#ic# t#e #e%'e $as%esi'nate%.



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To t#e etent t#at t#e ao,e re0!ire&ents are satis"ie%) (ara'ra(# 95 states:

I" a cas# "lo$ #e%'e &eets t#e con%itions in (ara'ra(# %!rin' t#e (erio%) it s#all eacco!nte% "or as "ollo$s:a/ t#e (ortion o" t#e 'ain or loss on t#e #e%'in' instr!&ent t#at is %eter&ine% to e an

e""ecti,e #e%'e see (ara'ra(# / s#all e reco'nise% %irectly in e0!ity t#ro!'# t#estate&ent o" c#an'es in e0!ity see AA+7 1@1/Q an%

/ t#e ine""ecti,e (ortion o" t#e 'ain or loss on t#e #e%'in' instr!&ent s#all ereco'nise% in (ro"it or loss.

Para'ra(# 9 "!rt#er states:

ore s(eci"ically) a cas# "lo$ #e%'e is acco!nte% "or as "ollo$s:a/ t#e se(arate co&(onent o" e0!ity associate% $it# t#e #e%'e% ite& is a%6!ste% to t#e

lesser o" t#e "ollo$in' in asol!te a&o!nts/:i/ t#e c!&!lati,e 'ain or loss on t#e #e%'in' instr!&ent "ro& ince(tion o" t#e

#e%'eQ an%ii/ t#e c!&!lati,e c#an'e in "air ,al!e (resent ,al!e/ o" t#e e(ecte% "!t!re cas#

"lo$s on t#e #e%'e% ite& "ro& ince(tion o" t#e #e%'eQ/ any re&ainin' 'ain or loss on t#e #e%'in' instr!&ent or %esi'nate% co&(onent o" it

i.e. not an e""ecti,e #e%'e/ is reco'nise% in (ro"it or lossQ an%c/ i" an entity4s %oc!&ente% ris8 &ana'e&ent strate'y "or a (artic!lar #e%'in'

relations#i( ecl!%es "ro& t#e assess&ent o" #e%'e e""ecti,eness a s(eci"ic co&(onento" t#e 'ain or loss or relate% cas# "lo$s on t#e #e%'in' instr!&ent see (ara'ra(#s B)B5 an% a//) t#at ecl!%e% co&(onent o" 'ain or loss is reco'nise% in accor%ance$ith paragraph 55.

I" a cas#*"lo$ #e%'e satis"ies t#e re0!ire&ents o" (ara'ra(# (ro,i%e% ao,e) t#en at t#e (oint t#at t#e ori'inal (!rc#ase or sales transaction occ!rs at a (oint "ollo$in' t#e enterin' o" t#e #e%'in' arran'e&ent/) t#e 'ains or losses ta8en to e0!ity $ill t#en e a%6!ste% a'ainst t#ecost o" t#e in,entory) or t#e sales a&o!nt. +!se0!ent 'ains an% losses $ill e ta8en to t#einco&e state&ent. T#is is consistent $it# t#e "ollo$in' (ara'ra(#s o" AA+7 139 (artic!larly

(ara'ra(# 9//:

9B. I" a #e%'e o" a "orecast transaction s!se0!ently res!lts in t#e reco'nition o" a"inancial asset or a "inancial liaility) t#e associate% 'ains or losses t#at $erereco'nise% %irectly in e0!ity in accor%ance $it# (ara'ra(# 95 s#all e reclassi"ie%into (ro"it or loss in t#e sa&e (erio% or (erio%s %!rin' $#ic# t#e asset ac0!ire% or

liaility ass!&e% a""ects (ro"it or loss s!c# as in t#e (erio%s t#at interest inco&e or interest e(ense is reco'nise%/. >o$e,er) i" an entity e(ects t#at all or a (ortion o" a loss reco'nise% %irectly in e0!ity $ill not e reco,ere% in one or &ore "!t!re

(erio%s) it s#all reclassi"y into (ro"it or loss t#e a&o!nt t#at is not e(ecte% to ereco,ere%.

9. I" a #e%'e o" a "orecast transaction s!se0!ently res!lts in t#e reco'nition o" a non*"inancial asset or a non*"inancial liaility) or a "orecast transaction "or a non*"inancialasset or non*"inancial liaility eco&es a "ir& co&&it&ent "or $#ic# "air ,al!e#e%'e acco!ntin' is a((lie%) t#en t#e entity s#all a%o(t a/ or / elo$:a/ it reclassi"ies t#e associate% 'ains an% losses t#at $ere reco'nise% %irectly in

e0!ity in accor%ance $it# (ara'ra(# 95 into (ro"it or loss in t#e sa&e (erio% or

(erio%s %!rin' $#ic# t#e asset ac0!ire% or liaility ass!&e% a""ects (ro"it or losss!c# as in t#e (erio%s t#at %e(reciation e(ense or cost o" sales is reco'nise%/.>o$e,er) i" an entity e(ects t#at all or a (ortion o" a loss reco'nise% %irectly in



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e0!ity $ill not e reco,ere% in one or &ore "!t!re (erio%s) it s#all reclassi"y into (ro"it or loss t#e a&o!nt t#at is not e(ecte% to e reco,ere%Q or

/ it re&o,es t#e associate% 'ains an% losses t#at $ere reco'nise% %irectly ine0!ity in accor%ance $it# (ara'ra(# 95) an% incl!%es t#e& in t#e initial cost or ot#er carryin' a&o!nt o" t#e asset or liaility.

99. An entity s#all a%o(t eit#er a/ or / in (ara'ra(# 9 as its acco!ntin' (olicy an%

s#all a((ly it consistently to all #e%'es to $#ic# (ara'ra(# 9 relates.1@@. For cas# "lo$ #e%'es ot#er t#an t#ose co,ere% y (ara'ra(#s 9B an% 9) a&o!ntst#at #a% een reco'nise% %irectly in e0!ity s#all e reco'nise% in (ro"it or loss in t#esa&e (erio% or (erio%s %!rin' $#ic# t#e #e%'e% "orecast transaction a""ects (ro"it or loss e.'. $#en a "orecast sale occ!rs/.

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