Risk management policies, Risk Management

 On 1 October 2010, a company issued at par $30 million (par value) of fixed rate 6% debenture loans to the market at par. Interest on the debenture loans is paid quarterly on the last day of each calendar quarter (i.e. 1.5% per quarter). The debenture loans will be redeemed on a future specified date at par.

To comply with the company's risk management policies, it entered into a receive-fixed, pay - variable interest rate swap agreement at market rates on $30 million to hedge the fair value of its debt. The terms of the swap are to pay the agreed variable rate established and fixed at the beginning of each quarter and receive 5.25% per annum fixed rate in return. The swap has a maturity date the same as that of the debentures.

The variable interest rate applicable to the swap for the 3 months to 31 December 2010 determined on 1 October 2010 was 4.72% per annum.

As a result of a rise in market interest rates, the fair value of the company's debenture loans fell to $29,762,240 by the company's year end, 31 December 2010.

The net fair value of the swap at the 31 December 2010 was $238,236 (loss).

No transaction costs were incurred on issue of the debentures loans or on entering into the swap agreement. All necessary documentation to treat the swap as a hedge was set up on 1 October 2010.

Explain the accounting treatment of the above transaction in accordance with IAS 39, including relevant calculations and journal entries (insofar as the information provided permits).

Posted Date: 3/15/2013 3:09:36 AM | Location : United States

Related Discussions:- Risk management policies, Assignment Help, Ask Question on Risk management policies, Get Answer, Expert's Help, Risk management policies Discussions

Write discussion on Risk management policies
Your posts are moderated
Related Questions
Stakeholder Analysis In the case of syringe management plan, the stakeholders include Maribyrnong Council, Yarra Council and other neighboring ones, manufacturers, distributors

Black Rock Investors is managing the pension fund of Virgin Atlantic. Sir Richard Branson wants to assess the risk of the portfolio following the Euro crisis. During a discussion

Risk management  should follow a structured approach The elements of a structured approach  to  risk management,  as you have  already studied above, are risk evaluation, risk

An insurance company is investigating offering kidnap and ransom insurance. Policies are to be sold to multinational companies to provide cover for certain named employees who are

Risk free assets is one for which there is no uncertainty in its expected rate of return and hence the standard deviation of such return is zero. Generally the expected rate of ris

what will be the number one credential for risk management?

Define the meaning of Return Return is the amount or rate of produce, profits, proceeds which accrues to an economic agent from an undertaking or investment. It's a reward for

Question: Under Section 6 of the Occupational Safety and Health Act 2005, employers have a statutory duty to prepare and keep revised a written statement of their safety and he

The Investment Committee is big on active management, and believes that there are areas/pockets of inefficiencies in the market. Knowing that you have taken Finance 455 at X-Univer

Increasingly, organizations are using computer-based tools for contracting, tendering, and procuring to meet project deliverable requirements. Along with the benefits, there are so