Document ID: chunk:federal_register_of_legislation:F2021C00192:body:0:p44
Version: federal_register_of_legislation:F2021C00192
Segment Type: other
Provision Reference: 
Character Range: 111140–114221

CU45,511
To recognise the change in the fair value of the hedged amount.
  (a) This example does not show how amounts of interest income and interest expense are calculated.

IE15 The net result on profit or loss (excluding interest income and interest expense) is to recognise a loss of (CU1,897). This represents ineffectiveness in the hedging relationship that arises from the change in estimated prepayment dates.
 Beginning of month 2
IE16 On 1 February 20X1 Entity A sells a proportion of the assets in the various time periods. Entity A calculates that it has sold 81/3 per cent of the entire portfolio of assets. Because the assets were allocated into time periods by allocating a percentage of the assets (rather than individual assets) into each time period, Entity A determines that it cannot ascertain into which specific time periods the sold assets were scheduled. Hence it uses a systematic and rational basis of allocation. Based on the fact that it sold a representative selection of the assets in the portfolio, Entity A allocates the sale proportionately over all time periods.
IE17 On this basis, Entity A computes that it has sold 81/3 per cent of the assets allocated to the three-month time period, ie CU8 million (81/3 per cent of CU96 million). The proceeds received are CU8,018,400, equal to the fair value of the assets.[13] On derecognition of the assets, Entity A also removes from the separate line item in the statement of financial position an amount that represents the change in the fair value of the hedged assets that it has now sold. This is 81/3 per cent of the total line item balance of CU45,511, ie CU3,793.
IE18 Entity A makes the following accounting entries to recognise the sale of the asset and the removal of part of the balance in the separate line item in the statement of financial position:

Dr                                                                                 Cash  CU8,018,400
                                                                                   Cr    Asset                                                         CU8,000,000
                                                                                   Cr    Separate line item in the statement of financial position     CU3,793
                                                                                   Cr    Profit or loss (gain)                                         CU14,607
To recognise the sale of the asset at fair value and to recognise a gain on sale.

Because the change in the amount of the assets is not attributable to a change in the hedged interest rate no ineffectiveness arises.
IE19 Entity A now has CU88 million of assets and CU80 million of liabilities in this time period. Hence the net amount Entity A wants to hedge is now CU8 million and, accordingly, it designates CU8 million as the hedged amount.
IE20 Entity A decides to adjust the hedging instrument by designating only a proportion of the original swap as the hedging instrument. Accordingly, it designates as the hedging instrument CU8 million or 40