SLS 9 - AC3102 SLS 9 KOH QI A N L I N N G S HI MI N L I U...

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AC3102 SLS 9 KOH QIAN LIN NG SHI MIN LIU ZONGLI CORINNE HUANG LIDAN VIVIAN POH 1
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Question 1 Explain why FRS 39 does not allow the use of basis adjustment method to deal with cash flow hedge reserve if the forecast transaction results in the recognition of a financial asset or a financial liability ? 2
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Question 1 Basis Adjustment : the effective portion of gain/loss on the hedging instrument that was previously recognised in OCI (equity) to be included as part of the cost of asset/liability FRS 39: ... an entity shall measure financial assets, including derivatives that are assets, at their fair values ... an entity shall measure all financial liabilities at amortised cost using the effective interest method” Transferring the effective portion of gain/loss (cash flow hedge reserve) as part of the cost of the financial assets/liabilities will alter the values of the financial instruments , which may mislead investors. This is also in violation of FRS 39. 3
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Question 2 ABC Ltd Enters into a hedge relationship on 1 Jan 20x8 Adopts 31 Dec accounting year end Prepares quarterly financial statements Documentation: Effectiveness test (80-125%) using cumulative figures 4
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