Interest rate swap is an agreement between parties to exchange interest rates. Let’s say, we have two parties (first party and second party). Then, the most commonly used interest rate agreement is “first party agrees to pay at fixed interest rate to second party and second party agrees to pay ... Read More

Currency futures is a type of contract in which two sides agree to exchange a specific quantity of a particular currency on a specific date at a pre agreed price. These are legally binding agreements and on expiry date, counter parties will have to deliver the amount on a delivery ... Read More

A future contract is the contract between a buyer and a seller, where the buyer agrees to buy a particular asset at a predetermined price. Buyer in the future contract will hold a long position and the seller will have a short position.Future contracts allow companies to hedge their risk ... Read More

Hedge ratio is a ratio of value of hedge position to the value of total exposure. Value of hedge position is the total amount invested by investors in hedged position and value of total exposure is total amount invested by investor in underlying assets.Hedge ratio also can be a comparative ... Read More

In this method, companies are allowed to recognize their gains and losses on hedging instruments against exposure of derivative instruments to reduce income volatility, if both are accounted separately.The main purpose of hedge accounting is to match the derivative gain/loss with underlying investment gain/loss. Its main advantage is that it ... Read More

Hedging is designed to protect the share value from market volatility. In simple words, it acts like an insurance coverage which protects you from any potential loss.The main purpose of hedging is to minimise/eliminate risk by offsetting the potential losses. Investors follow this to safeguard their investments from losses due ... Read More

The major differences between Indian GAAP (Generally Accepted Accounting Principles) and US GAAP (United States Generally Accepted Accounting Principles) are as follows −Indian GAAP (Generally Accepted Accounting Principles)Financial statements are prepared in accordance with the principle of conservatism.Financial statements are prepared with presentation requirements of schedule VI of companies ACT, ... Read More

ProblemABC Company entered into a forward contract to buy its own shares.Details for the same are given below and here, XXXX refers to the respective year.Contract date − 1st Jan XXXXMaturity date − 31st Dec XXXXExercise price of $110No of shares − 1500Market price − $100 (as on 1st Jan XXXX)Market ... Read More

The accounting for forward contracts is written as follows −Here, XXXX and XXX refer to the respective amount.RecognizeSince the agreement is for a future date, it should be accounted for now (date of signed, date of which physical exchange).CreditDebitAsset obligationXXXXAsset ReceivableXXXXRecording (seller perspective)Asset obligation credited for spot rate and asset ... Read More

ProblemPrepare a job sheet using the transactions given below −Amount ($)Raw materials750000Work in progress (job A)310000Utility costs50000Direct labour costs125000Advertising expenses310000Indirect labour costs202000Travel expenses40000Raw materials675000Insurance15000Work in progress (Job B)295000Finished goods1089700Direct labour costs98000Cost of goods sold963000Indirect labour costs103000Sales2058000Manufacturing overheads1158009564500Administrative expenses105000Carrying balancesSales commissions195000Raw materials30000Manufacturing overheads220000Work-in-progress88000Depreciation (equipment)45000Cost of goods sold28000146000SolutionThe job sheet for the ... Read More