Introduction to hedging

Old UK GAAP and FRSSE

Under Old UK GAAP (where FRS 26 had not been adopted) it was common for derivative contracts that were hedging one or more risks of an asset, liability or transaction, to be ‘off balance sheet’, typically recognised at a historic cost of nil. The asset, liability or transaction being hedged by the derivative, and the derivative itself, may have been accounted for as a single item. For tax purposes, this equated to accounting for the derivative contract on an authorised accruals basis.

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