高级会计学(第10版)教师手册Beams10e_IM_8.pdf

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1、 2009 Pearson Education,Inc.publishing as Prentice Hall 129 Chapter 12 DERIVATIVES AND FOREIGN CURRENCY TRANSACTIONS Chapter Outline A FASB Statement No.52,“Foreign Currency Translation,”as amended by FASB Statement No.133,stipulates 1 At the date a transaction is recognized,each element shall be me

2、asured and recorded in the functional currency of the recording entity using the exchange rate in effect on that date 2 At each balance sheet date,recorded balances that are denominated in a foreign currency shall be adjusted to reflect the current exchange rate.B Definitions of currencies from FAS

3、52:1 An entitys functional currency is the currency of the primary environment in which it operates.This is normally the currency in which it generates and expends cash.Company management determines the functional currency.2 Foreign currency is a currency other than the entitys functional currency.3

4、 Local currency is the currency of a particular country being referred to.4 Reporting currency is the currency in which an enterprise prepares its financial statements.C A transaction is measured in a particular currency if its magnitude is expressed in that currency and included in the financial re

5、cords in that currency.1 Assets and liabilities are denominated in a currency if their amounts are fixed in terms of that currency and will be settled in that currency.a For example,US Company buys merchandise from a Mexican firm for 500,000 pesos,payable in 10 days.The transaction is denominated in

6、 pesos;however,US Company must measure the purchase in US dollars before it can be recorded.This is done through the use of exchange rates.2009 Pearson Education,Inc.publishing as Prentice Hall 130 D An exchange rate is the ratio between a unit of one currency and the amount of another currency for

7、which that unit can be exchanged.From the viewpoint of a U.S.company:1 A direct quotation is expressed in U.S.dollars.It is the U.S.dollar equivalent of 1 unit of a foreign currency.a A direct quotation for Mexican pesos might be$.1333.The purchase denominated at 500,000 pesos is measured at$66,650

8、U.S.dollars(500,000 pesos x$.1333).2 An indirect quotation is expressed in the foreign currency.It is the foreign currency equivalents to one U.S.dollar.a An indirect quotation for Mexican pesos is expressed as 7.5019 pesos.The 500,000 pesos purchase is measured at$66,650(500,000 pesos/7.5019 pesos)

9、.3 A spot rate is the exchange rate for immediate delivery of currencies exchanged.4 The current rate is the rate at which one unit of currency can be exchanged for another currency at the balance sheet date or the transaction date.5 The historical rate is the rate in effect at the date a specific t

10、ransaction or event occurred.FOREIGN EXCHANGE TRANSACTIONS OTHER THAN FORWARD CONTRACTS A Foreign exchange transactions are transactions whose terms are denominated in a currency other than an entitys functional currency.1 A foreign transaction is a transaction between entities in different countrie

11、s.The transaction is a foreign currency transaction only if it is denominated in a foreign currency from a U.S.firms viewpoint.2 International transactions denominated in U.S.dollars are not foreign currency transactions from a U.S.firms viewpoint.B FAS 52 requirements for foreign currency transacti

12、ons:1 The transaction is translated into U.S.dollars at the spot rate in effect at the transaction date.2009 Pearson Education,Inc.publishing as Prentice Hall 131 a An exchange gain or loss results when the exchange rate changes between the transaction date and the settlement date.b An exchange gain

13、 or loss occurs only when the transaction is denominated in a foreign currency.2 At the balance sheet date,recorded balances that are denominated in a foreign currency are adjusted to the current exchange rate.a The difference between the recorded balance and the adjusted balance at the balance shee

14、t date is the exchange gain or loss to be included in current income.FOREIGN CURRENCY DERIVATIVES AND HEDGING ACTIVITIES A A derivative is the name given to a broad range of financial securities whose common characteristic is that the derivative contracts value to the investor is related to fluctuat

15、ions in price,rate,or some other variable that underlies it.A hedge contract is a form of derivative.Statement No.133 establishes three defining characteristics for a derivative:1 one or more underlyings and one or more notional amounts or payment provisions or both 2 no initial investment or one th

16、at is smaller than required for other similar contracts 3 net settlement required or permitted,can readily be settled net outside the contract,or asset delivery provision.For hedged items and the associated derivatives,formal documentation must be prepared at the hedge inception.NEW STANDARD Stateme

17、nt of Financial Accounting Standards No.161 Disclosures about Derivative Instruments and Hedging Activities(an amendment of FASB Statement No.133):A Requires enhanced disclosure about:1)how and why an entity uses derivative instruments,2)how derivative instruments and related hedged items are accoun

18、ted for under Statement 133 and its related interpretations,and 3)how derivative instruments and related hedged items affect an entity,financial position,financial performance,and cash flows.2009 Pearson Education,Inc.publishing as Prentice Hall 132 B A hedging operation is the purchase or sale of a

19、 foreign currency contract to offset the risks of holding receivables and payables denominated in a foreign currency.1 The most common types of price and rate risks that companies hedge include interest rates,commodity prices,stock prices,and foreign currency exchange rates.2 Option,forward,and futu

20、res contracts are considered derivative instruments and accounted for according to FASB Statement No.133“Accounting for Derivative Instruments and Hedging Activities”.C A forward contract is an agreement between two parties to exchange different currencies or a commodity at a specified future date a

21、nd at a pre-agreed price and quantity.1 A futures contract shares essentially the same characteristics as a forward contract,but is standardized allowing it to be easily traded in markets.2 The accounting for forward exchange contracts depends on the nature and purpose of the hedge.3 FASB Statement

22、No.133 identifies speculations,fair value hedges,and cash flow hedges.4 The agreement may require actual physical delivery of the good or a net settlement allows payment of money.D Options are a common hedging instrument in which only one of the contracting parties is required to perform while the o

23、ther party has the ability,but not the obligation,to perform E For hedged items and the derivative instruments designated to hedge them to qualify for hedge accounting,documentation at the inception of the hedge must be prepared.1 Among other things,this documentation describes the relationship betw

24、een the hedged item and the derivative,and the risk management objective and strategy the company is achieving through the hedging relationship.2 Once a type of risk is identified that qualifies for hedge accounting,the effectiveness of the hedge is assessed both at the inception of the hedge and du

25、ring the hedges existence.2009 Pearson Education,Inc.publishing as Prentice Hall 133 F One of three types of hedge accounting must be used to account for the derivative and the related hedge item 1 Fair value hedge accounting is used when the item being hedged is an existing asset or liability posit

26、ion and firm purchase or sale commitments.Both the asset being hedged and the derivative are marked to fair value and the gain or loss is immediately recognized in earnings.2 Cash flow hedge accounting hedges the exposure to variability in expected future cash flows associated with that risk.The eff

27、ective portion of the related gain or loss recognition is deferred until the forecasted transaction affect income.a The gain or loss in included as a component of Accumulated Other Comprehensive Income(AOCI).3 Hedge of a net investment in a foreign subsidiary,which is covered in chapter 13.4 See the

28、 Green Company example in the text.G The accounting for derivative instruments and hedging activities under SFAS 133 is aimed at reflecting the underlying economic reality of the hedging relationship.EXAMPLE OF HEDGES A Fair value hedges 1 Hedge of an exposed net asset position or net liability posi

29、tion a An exposed net assets position is an excess of assets denominated in foreign currency over liabilities denominated in that currency and translated at the current rate.b To hedge the exposed net asset position,a firm enters into a forward contract with an exchange broker to sell foreign curren

30、cy for future delivery.(1)The contract receivable with the exchange broker will be stated in U.S.dollars at the forward rate.This part of the contract will not change with changes in the exchange rate.(2)The contract payable to the exchange broker is denominated in the foreign currency and it is mea

31、sured and recorded at the forward rate throughout the life of the contract.2009 Pearson Education,Inc.publishing as Prentice Hall 134 (3)Under FAS 52 provisions,receivables and payables denominated in foreign currency must be adjusted to the current spot rate at the balance sheet date.Thus,the contr

32、act payable is adjusted to the forward rate at the balance sheet date and the original account receivable is adjusted to the spot rate at the balance sheet date.(i)A gain or loss on the net asset position will be offset by the gain or loss on the forward contract.(ii)The income effect of the hedge i

33、s the amount of the change in the spot rate that is not exactly offset by a corresponding change in the forward rate.(4)The change in the derivative instrument must also be discounted back from the maturity date since that is when the gain or loss will actually occur.c An exposed net liability posit

34、ion is an excess of liabilities denominated in a foreign currency over assets denominated in the same currency and translated at the current rate d To hedge the exposed net liability position,a firm enters into a forward contract with the exchange broker to purchase foreign currency for future recei

35、pt.(1)The contract receivable is denominated in foreign currency and it is measured and recorded at the forward rate throughout the life of the contract.(2)The contract payable is stated in U.S.dollars at the forward rate and will not change with changes in the exchange rate.(3)The gain or loss on t

36、he original liability offsets the opposite gain or loss on the contract receivable.2 Hedging an identifiable foreign currency commitment:a A foreign currency commitment is a contract or agreement that will result in a foreign currency transaction at a later date.(1)The U.S.firm has an exposure to ex

37、change rate changes,but a commitment has not been entered in the accounts as an asset or liability.2009 Pearson Education,Inc.publishing as Prentice Hall 135 b A forward exchange contract is a hedge of an identifiable foreign currency commitment if it is both intended and effective as a hedge of the

38、 commitment and the commitment is firm.(1)The forward exchange contract with the exchange broker is initially recorded the same as a hedge of an exposed net asset or liability position,and the contract receivable or payable denominated in foreign currency must be adjusted on the balance sheet date t

39、o the future rate at the balance sheet date.(2)The recorded gain or loss on the hedge needs to be offset by a corresponding gain or loss on the underlying transaction.Since the underlying transaction is not recorded,a new account must be set up to record the change in value of the unrecorded underly

40、ing transaction.(3)When the underlying firm commitment is executed,the change in value is incorporated in the amount of the purchase or sale that the company was hedging.B Cash flow hedges hedge a forecasted foreign currency transaction.1 With a forecasted transaction there are no grounds for adjust

41、ing a non-existent underlying transaction.a Still the derivative contract must be carried at fair value.The offset to the change in the fair value of the derivative is,therefore,other comprehensive income.2 When the anticipated transaction comes to fruition,the other comprehensive income account is

42、closed into the purchase or sales amount.If the anticipated transaction fails to materialize,the gain or loss is recognized in net income.C A forward exchange contract that speculates in foreign currency exchange price movements is valued at forward rates throughout the life of the contract.All gain

43、s and losses on the contract are included in current income.International Accounting Standards:A Certain International Accounting Standards are relevant:1)21 addresses how to include foreign currency transactions and foreign operations in the financial statements.2)32 terms are defined.3)39 deals wi

44、th derivatives.2009 Pearson Education,Inc.publishing as Prentice Hall 136 Description of assignment material Minutes Questions(20)Exercises (18)E12-1 Jolly Rice Journal entries for a hedge 15 E12-2 Jolly Rice Journal entries for a hedge of a firm purchase commitment 15 E12-3 Brookings Entries for a

45、firm sales commitment and a forward contract 15 E12-4 Wilson Entries for hedge of an existing asset 15 E12-5 6 MC general questions(FASB Statement No.52 concepts)12 E12-6 Zimmer Short answer questions 12 E12-7 Aviator Journal entries for a purchase denominated in foreign currency 12 E12-8 Wick Deter

46、mine exchange gain or loss for two years from sale 10 denominated in foreign currency E12-9 Door Journal entries for a sale transaction using indirect quotations 10 E12-10 AICPA 4 short problem-type questions 16 E12-11 Monroe Calculate exchange gain or loss at year end and at settlement 12 E12-12 Am

47、erican TV Journal entries(purchase and sale transactions,year-20 end adjustments,and payment and collection of accounts)E12-13 Hayes Journal entries for purchase transaction and forward contract 20 to hedge net liability position E12-14 Target Computations(hedge of net liability position)10 E12-15 C

48、ardinal AICPA problem type questions(forward contracts)12 E12-16 Ace Foundry/Windsor Journal entries for hedge of sale commitment 25 and settlement E12-17 Import Bazaar Journal entry to record hedge of a purchase 10 commitment;also a question on year-end adjustment E12-18 Martin Journal entries for

49、speculation in Swiss Euros 16 Problems(11)P12-1 Northwest Gas Works Determine appropriate hedge accounting,prepare 25 journal entries P12-2 Instrument Works Determine appropriate hedge accounting,prepare 30 journal entries P12-3 Campion Determine if hedge accounting applies,calculate fair value,prep

50、are 30 journal entries.P12-4 Lincoln International Calculate year-end exchange gain or loss;calculate 30 receivables and payables in balance sheet;journal entries P12-5 Shelton Calculate receivables,payables,exchange gains and losses,and 20 account for a hedge of a net asset or liability amount P12-