Derivatives designed as a hedge: To reduce risks, ASC 815 provides specific requirements for classifying derivative as a hedge. Hedge accounting offsets the gain or loss on the hedged instrument. Hedges can be used to offset foreign currency exchange rate risk, interest rate risk and commodity risks. A derivative instrument in order to qualify as a hedge must have sufficient documentation at the beginning of the hedge term to identify the objective of the hedge. The hedge must be highly effective throughout its term, the effectiveness must be tested every three months and each time the financial instrument is prepared. The entries when company uses the forward exchange rate to measure hedge effectiveness.

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Chapter 11, Problem 11.27.2P

To determine

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Derivatives designed as a hedge: To reduce risks, ASC 815 provides specific requirements for classifying derivative as a hedge. Hedge accounting offsets the gain or loss on the hedged instrument. Hedges can be used to offset foreign currency exchange rate risk, interest rate risk and commodity risks. A derivative instrument in order to qualify as a hedge must have sufficient documentation at the beginning of the hedge term to identify the objective of the hedge. The hedge must be highly effective throughout its term, the effectiveness must be tested every three months and each time the financial instrument is prepared.

The entries when company uses the forward exchange rate to measure hedge effectiveness.

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