The question asks: What impact did the derivatives (futures contract) have on Food-for-All’s 2010 financial statements?
According to the reading, two of the below choices (A and B) should actually fit as answers:
A) The gains or losses on the hedges were recognized in net income
B) The ineffective portions of the hedges were recognizaed in net income
C) The effective portions of the hedges were recognized in comprehensive income.
Can someone advise?
I was also stuck on this problem. Actually, the answer could be B and C. For Cash Flow hedge, the ineffective portion goes to I/S while effective portion is recorded in OCI. Once the transaction is settled, the OCI portion is recognized in I/S.
Still not sure.
Yes either B or C should be right. Cashflow hedge - effective goes to OCI until it affects income, and ineffective portion goes to income statement.
My first instinct was that they were trying to trick you by making the hedge completely offest the change in the underlying (a 100% effective hedge) so there would be no ineffective portion to recognize. But the reading says that 94% of it was effective. The other 6% should affect income. Don’t know why B isn’t right
My fault, I meant to put that the answer is either B or C
Guys, I responded to another post on the same topic just 10 minutes ago. This question has been causing problems in the past:
http://www.analystforum.com/forums/cfa-forums/cfa-level-ii-forum/91321049
For what its worth, I think it is wrong as well 