Derivative Financial Instruments

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..... rency etc. Example - Derivatives such as Options, Interest Rate Swaps, Currency Swaps and Futures & Forwards. Following condition should be satisfied to be classified as Derivative: * Its value changes in response to change in underlying assets. * It requires no initial or very less investment than it would be required otherwise to enter into contract in normal course. * It is settled at f .....

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..... alue of the right and obligation is not zero, the contract is recognised as an asset or liability * At each Balance Sheet Date - Difference between price of underlying asset on Contract Date & Balance Sheet Date to be recognise. If Field rate is also given, then consider Present Value of above amount as Fair Value. Journal Entries * On Commitment Date - Generally, No entry as Fair Value is .....

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..... iability (if any) Dr. XXX To Bank (Initial payment amount) XXX To Derivative Financial Asset (if any) XXX * If Contract is for sale of Underlying Asset Bank A/c (Receipt of Initial Amount) Dr. XXX Derivative Financial Asset (if any) XXX To Underlying Asset (Fair Value) XXX To Derivative Financial Liability (if any) XXX *Difference in Journal entry will be recognised in Profit or Loss .....

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