How should the increase in the fair value of the forward contract be treated within the financial statements for the year ended 31 December 20X3?

On 31 October 20X3:

• A company expected to agree a foreign currency transaction in January 20X4 for settlement on 31 March 20X4.

• The company hedged the currency risk using a forward contract at nil cost for settlement on 31 March 20X4.

• The transaction was correctly treated as a cash flow hedge in accordance with IAS 39 Financial Instruments: Recognition and Measurement.

On 31 December 20X3, the financial year end, the fair value of the forward contract was $10,000 (asset).

How should the increase in the fair value of the forward contract be treated within the financial statements for the year ended 31 December 20X3?
A . Not recognised in 20X3 as the forward contract is not settled until after the year end.
B . Not recognised in 20X3 as the gain will be offset by a loss on the hedged transaction.
C . A $10,000 profit will be recognised within the Income Statement.
D . A $10,000 profit will be recognised within other comprehensive income.

View Answer

Answer: D