End of month 2 (28 February 20x1)End of month 2 (28 February 20x1)

End of month 2 (28 February 20x1)

IE23 On 28 February 20x1 when Entity A next tests effectiveness, LIBOR is unchanged. Entity A does not revise its prepayment expectations. The fair value of the designated interest rate swap with a notional principal of CU8 million is (CU9,518)[12] (the swap is a liability). Also, Entity A calculates the fair value of the CU8 million of the hedged assets as at 28 February 20x1 as CU8,009,518.[13]

IE24 Entity A makes the following accounting entries relating to the hedge in this time period:

Dr Cash CU71,707

Cr Profit or loss (interest income) CU71,707

To recognise the interest received on the hedged amount (CU8 million).

Dr Profit or loss (interest expense) CU71,707

Cr Profit or loss (interest income) CU62,115

Cr Cash CU9,592

To recognise the interest received and paid on the portion of the swap designated as the hedging instrument (CU8 million).

Dr Derivative liability CU9,445

Cr Profit or loss (gain) CU9,445

To recognise the change in the fair value of the portion of the swap designated as the hedging instrument (CU8 million) (CU9,518 – CU18,963)

Dr Profit or loss (loss) CU9,445

Cr Separate line item in the
statement of financial position CU9,445

To recognise the change in the fair value of the hedged amount (CU8,009,518 – CU8,018,963).

IE25 The net effect on profit or loss (excluding interest income and interest expense) is nil reflecting that the hedge is fully effective.

IE26 Entity A makes the following accounting entry to amortise the line item balance for this time period:

Dr Profit or loss (loss) CU11,378

Cr Separate line item in the
statement of financial position CU11,378[14]

To recognise the amortisation charge for the period.