Derivatives and hedging instruments

Learning objectives

• Analyse the category of a hedging derivative in relation to the risk managed.L3

Normative references

• IFRS 18 §B70Gains and losses on an instrument designated as a hedging instrument under IFRS 9 are classified in the category of the income and expenses affected by the risks the instrument is used to manage, unless this would require grossing up gains and losses, in which case they are all classified in operating; the same requirement applies to a derivative not designated but used to manage identified risks, with the additional undue cost or effort exception (B72); a derivative not used to manage risks is classified in financing if it relates to a transaction that involves only the raising of finance, otherwise in operating (B73).

Original summaries of the paragraphs (reference register), never a quotation of the standard.

1 question

• Kepler SA designates, under IFRS 9, an interest rate swap as a hedging instrument for the interest rate risk of a borrowing whose interest expenses fall in the financing category (case facts). This classification does not require grossing up gains and losses (case data). In which category of the statement of profit or loss does Kepler classify the gains and losses on the swap?L3