When a derivative is accounted for under hedge accounting, Multiple choice question. the balance sheet is not adjusted for changes in the fair value of the derivative. gains and losses on the derivative do not affect net income. the volatility of net income increases.
Added by Emilio C.
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Hedge accounting is a method that aligns the timing of gains and losses on a hedging instrument (like a derivative) with the timing of the gains and losses on the hedged item. This is done to reduce volatility in net income. Show more…
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An entity recognizes deferred taxes on the gain or loss on derivatives designated as cash flow hedges due to the different accounting treatments of these derivatives under IFRS and for the purpose of the tax calculation. During the current accounting period, a loss on derivatives designated as cash flow hedges which amounted to (3,700) was recognized. The entity has chosen to present two statements: a separate statement of profit or loss and a statement of comprehensive income. Where should the entity recognize tax consequences of this loss during the current accounting period? in the statement of profit or loss In the statement of comprehensive income Either in the statement of comprehensive income or in the statement of changes in equity Either in the statement of profit or loss or in the statement of comprehensive income
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An advantage of using the fair value through other comprehensive income is that (a) the effect on other comprehensive income is reported in the income statement. (b) unrealized gains and losses are not used to evaluate management. (c) unrealized losses must be reported on the income statement, but unrealized gains are reported in other comprehensive income. (d) unrealized gains must be reported on the income statement, but unrealized losses are reported in other comprehensive income.
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If the inherent leverage of derivatives is what causes increased volatility, why is it that derivative exchanges do not choose the easy route of increasing margins to reduce volatility ?
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