{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/815/25/#55-implementation-guidance-and-illustrations","source":"FASB Accounting Standards Codification, Basic View","usage":"Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective.","topic":"815","topic_title":"Derivatives and Hedging","subtopic":"815-25","subtopic_title":"Fair Value Hedges","section":{"number":"55","label":"55 Implementation Guidance and Illustrations","anchor":"55-implementation-guidance-and-illustrations","is_sec":false,"groups":[{"block":null,"heading":null,"paragraphs":[{"citation":"815-25-55-1","para":"55-1","html":"
Paragraph superseded by Accounting Standards Update No. 2022-01.
","snippet":"Paragraph superseded by Accounting Standards Update No. 2022-01.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:749555561ad473ecbb3033ce33e8789e6c6a9848e9de5e45f1b8291fa8d9aeda","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f286374deedf1622181262b7d8f59a2babc955f61d0cce6409dd743c8ed46fa5","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"block":null,"heading":"Implementation Guidance","paragraphs":[{"citation":"815-25-55-1A","para":"55-1A","html":"
This implementation guidance demonstrates how an entity should apply the following aspects of the portfolio layer method if it elects to designate multiple hedged layers of a single closed portfolio:
  1. a
    Performing the similar-asset assessment upon initial designation of a portfolio layer method hedge
  2. b
    Evaluating whether the entity may continue to apply the guidance for a portfolio layer method hedge after initial designation.
","snippet":"This implementation guidance demonstrates how an entity should apply the following aspects of the portfolio layer method if it elects to designate multiple hedged layers of a single closed portfolio:\n(a) Performing the s…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3063b6bebfc5eecd8d871a5b2ea60a44e57763b9c571d0c82b516b3647662912","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-1B","para":"55-1B","html":"
For the purposes of illustrating the guidance in paragraph 815-25-55-1A, the implementation guidance in paragraphs
815-25-55-1C through 55-1D
assumes that Entity A designates multiple hedged layers of a closed portfolio of 5-year and 10-year prepayable loans originated on the hedge inception date.
","snippet":"For the purposes of illustrating the guidance in paragraph 815-25-55-1A, the implementation guidance in paragraphs 815-25-55-1C through 55-1D assumes that Entity A designates multiple hedged layers of a closed portfolio …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:266cea94f9795338ec367cba056ee3a97b686df8b4c76a6058db1598da8d8b64","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-1C","para":"55-1C","html":"
Entity A designates hedged layers with assumed maturity dates of three years and seven years, respectively. When applying the similar-asset assessment for a portfolio hedge in accordance with paragraph 815-20-25-12(b)(1), Entity A should consider all assets in the closed portfolio for the 3-year hedged layer but consider only the 10-year assets for the 7-year hedged layer. That is, an entity should consider the assets that support the hedged layer.
","snippet":"Entity A designates hedged layers with assumed maturity dates of three years and seven years, respectively. When applying the similar-asset assessment for a portfolio hedge in accordance with paragraph 815-20-25-12(b)(1)…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:58b71e2e3c9cf1d17e2d951adb648e4ca1b7c9114c080183d94279a04ce438d0","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-1D","para":"55-1D","html":"
After initial hedge designation, Entity A should continue to assess whether the individual three-year and seven-year hedged layers meet the requirements in paragraph 815-25-35-7A on the basis of the same assets used to perform the similar-asset assessments in accordance with paragraph 815-25-55-1C. For Years 1–3, the entity should consider whether the hedged layers in aggregate are anticipated to be outstanding.
","snippet":"After initial hedge designation, Entity A should continue to assess whether the individual three-year and seven-year hedged layers meet the requirements in paragraph 815-25-35-7A on the basis of the same assets used to p…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6d226ecff60f4592e2382a3873b1d0141631d1223182bda8a6beddb10198f08d","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f067f8decb9360017d156fd3f702e3ae8004dfc029b5b94fa9e00767b96fa7e7","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"block":null,"heading":"Illustrations","paragraphs":[{"citation":"815-25-55-1E","para":"55-1E","html":"
This Example illustrates the guidance in Sections 815-20-25, 815-20-35, and 815-25-35 for how an entity may assess hedge effectiveness in a fair value hedge of natural gas inventory with futures contracts. Assume that the hedge satisfied all of the criteria for hedge accounting at inception.
","snippet":"This Example illustrates the guidance in Sections 815-20-25, 815-20-35, and 815-25-35 for how an entity may assess hedge effectiveness in a fair value hedge of natural gas inventory with futures contracts. Assume that th…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f255759f09e8f3160f3bdb3096e84ce006be8ac98918d3120a15e5fcaa4112bf","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-2","para":"55-2","html":"
Entity A has 20,000 million British thermal units of natural gas stored at its location in West Texas. To hedge the fair value exposure of the natural gas, Entity A sells the equivalent of 20,000 million British thermal units of natural gas futures contracts on a national mercantile exchange. The futures contracts prices are based on delivery of natural gas at the Henry Hub gas collection point in Louisiana.
","snippet":"Entity A has 20,000 million British thermal units of natural gas stored at its location in West Texas. To hedge the fair value exposure of the natural gas, Entity A sells the equivalent of 20,000 million British thermal …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6ef5f5fbc9fd8434843212199108d0587a42315fc64d03a5e9f094875756a739","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-3","para":"55-3","html":"
The price of Entity A's natural gas inventory in West Texas and the price of the natural gas that is the underlying for the futures contracts it sold will differ as a result of regional factors (such as location, pipeline transmission costs, and supply and demand). Entity A therefore may not automatically assume that the hedge will be highly effective at achieving offsetting changes in fair value, and it cannot assess effectiveness by looking solely to the change in the price of natural gas delivered to the Henry Hub. The use of a hedging instrument with a different underlying basis than the item or transaction being hedged is generally referred to as a cross-hedge. The principles for cross-hedges illustrated in this Example also apply to hedges involving other risks. For example, the effectiveness of a hedge of interest rate risk in which one interest rate is used as a surrogate for another interest rate would be evaluated in the same way as the natural gas cross-hedge in this Example.
","snippet":"The price of Entity A's natural gas inventory in West Texas and the price of the natural gas that is the underlying for the futures contracts it sold will differ as a result of regional factors (such as location, pipelin…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:8a7bca2266b519036d24f64d4ef08f042c440348ca4eae5b7eb3abd5fcae9220","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-4","para":"55-4","html":"
Both at inception of the hedge and on an ongoing basis, Entity A might assess the hedge's expected effectiveness on a quantitative basis based on the extent of correlation in recent years for periods similar to the spot prices term of the futures contracts between the spot prices of natural gas in West Texas and at the Henry Hub. If those prices have been and are expected to continue to be highly correlated, Entity A might reasonably expect the changes in the fair value of the futures contracts attributable to changes in the spot price of natural gas at the Henry Hub to be highly effective in offsetting the changes in the fair value of its natural gas inventory. In assessing effectiveness during the term of the hedge, Entity A must take into account actual changes in spot prices in West Texas and at the Henry Hub. The period of time over which correlation of prices should be assessed would be based on management's judgment in the particular circumstance.
","snippet":"Both at inception of the hedge and on an ongoing basis, Entity A might assess the hedge's expected effectiveness on a quantitative basis based on the extent of correlation in recent years for periods similar to the spot …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f4bc132330d03f5d7c4bbcbe951c3c891be6beb84f5ed1a895176b60325d3224","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-5","para":"55-5","html":"
Entity A may not assume that the change in the spot price of natural gas located at Henry Hub, Louisiana, is the same as the change in fair value of its West Texas inventory. The physical hedged item is natural gas in West Texas, not natural gas at the Henry Hub. In identifying the price risk that is being hedged, Entity A also may not assume that its natural gas in West Texas has a Louisiana natural gas component. Use of a price for natural gas located somewhere other than West Texas to assess the effectiveness of a fair value hedge of natural gas in West Texas would be inconsistent with this Subtopic and could result in an assumption that a hedge was highly effective when it was not. If the price of natural gas in West Texas is not readily available, Entity A might use a price for natural gas located elsewhere as a base for estimating the price of natural gas in West Texas. However, that base price must be adjusted to reflect the effects of factors, such as location, transmission costs, and supply and demand, that would cause the price of natural gas in West Texas to differ from the base price.
","snippet":"Entity A may not assume that the change in the spot price of natural gas located at Henry Hub, Louisiana, is the same as the change in fair value of its West Texas inventory. The physical hedged item is natural gas in We…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a32d5a48bc6c3b6cc9578514d5944ec41971e6003241e4b99f209118a6356fde","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-6","para":"55-6","html":"
Consistent with Entity A's method of assessing whether the hedge is expected to be highly effective, the hedge would not be perfectly effective and there would be a net earnings effect to the extent that the actual change in the fair value of the futures contracts attributable to changes in the spot price of natural gas at the Henry Hub did not offset the actual change in the spot price of natural gas in West Texas per million British thermal units multiplied by 20,000.
","snippet":"Consistent with Entity A's method of assessing whether the hedge is expected to be highly effective, the hedge would not be perfectly effective and there would be a net earnings effect to the extent that the actual chang…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5045ecc19fc4098839352d8738392c2fedafb95ecee0869786a387bdea56b05b","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-7","para":"55-7","html":"
That method excludes the change in the fair value of the futures contracts attributable to changes in the difference between the spot price and the forward price of natural gas at the Henry Hub in assessing effectiveness. The excluded amount would be recognized in earnings through an amortization approach in accordance with paragraph 815-20-25-83A or a mark-to-market approach in accordance with paragraph 815-20-25-83B and presented in the same income statement line item as the earnings effect of the hedged item in accordance with paragraph 815-20-45-1A.
","snippet":"That method excludes the change in the fair value of the futures contracts attributable to changes in the difference between the spot price and the forward price of natural gas at the Henry Hub in assessing effectiveness…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:58fc8d7649b242be9863a3195752fd6393eb7e455fa7d25a249cbe645f459e3c","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-8","para":"55-8","html":"
This Example illustrates the guidance in Sections 815-20-25, 815-20-35, and 815-25-35 for how an entity may assess hedge effectiveness in a fair value hedge of tire inventory with a forward contract. Assume that the hedge satisfied all of the criteria for hedge accounting at inception.
","snippet":"This Example illustrates the guidance in Sections 815-20-25, 815-20-35, and 815-25-35 for how an entity may assess hedge effectiveness in a fair value hedge of tire inventory with a forward contract. Assume that the hedg…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:46edf91f6581e90ced8939d1d32f8f852abc509df5d1f2247e1790be2be62f0a","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-9","para":"55-9","html":"
Entity B manufactures tires. The production of those tires incorporates a variety of physical components, of which rubber and steel are the most significant, as well as labor and overhead. Entity B hedges its exposure to changes in the fair value of its inventory of 8,000 steel-belted radial tires by entering into a forward contract to sell rubber at a fixed price.
","snippet":"Entity B manufactures tires. The production of those tires incorporates a variety of physical components, of which rubber and steel are the most significant, as well as labor and overhead. Entity B hedges its exposure to…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2ae192c40ef7fc1c1228757a8965c1ee7431a7d0fd5a3af07f1f711b1fdaf6c4","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-10","para":"55-10","html":"
Entity B decides to perform subsequent hedge effectiveness assessments on a quantitative basis and bases its assessment on changes in the fair value of the forward contract attributable to changes in the spot price of rubber. To determine whether the forward contract is expected to be highly effective at offsetting the change in fair value of the tire inventory, Entity B could estimate and compare such changes in the fair value of the forward contract and changes in the fair value of the tires (computed as the market price per tire multiplied by 8,000 tires) for different rubber and tire prices. Entity B also should consider the extent to which past changes in the spot prices of rubber and tires have been correlated. Because tires are a nonfinancial asset and rubber is only an ingredient in manufacturing them, Entity B may not assess hedge effectiveness by looking to the change in the fair value of only the rubber component of the steel-belted radial tires (see paragraph 815-20-25-12(e)). Both at inception of the hedge and during its term, Entity B must base its assessment of hedge effectiveness on changes in the market price of steel-belted radial tires and changes in the fair value of the forward contract attributable to changes in the spot price of rubber.
","snippet":"Entity B decides to perform subsequent hedge effectiveness assessments on a quantitative basis and bases its assessment on changes in the fair value of the forward contract attributable to changes in the spot price of ru…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6b0e5e1b4155103ee8f665644f406abc99a9d08df12d343b423d8b63aef08a1b","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-11","para":"55-11","html":"
It is unlikely that this transaction would be highly effective in achieving offsetting changes in fair value. However, if Entity B concludes that the hedge will be highly effective and the hedge otherwise qualifies for hedge accounting, the hedge would have a net earnings effect to the extent that the actual changes in the following amounts did not offset:
  1. a
    The fair value of the forward contract attributable to the change in the spot price of rubber
  2. b
    The market price of steel-belted radials multiplied by the number of tires in inventory.
","snippet":"It is unlikely that this transaction would be highly effective in achieving offsetting changes in fair value. However, if Entity B concludes that the hedge will be highly effective and the hedge otherwise qualifies for h…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:813e3a373a4ac00c0039725b6099280f736f751986e353bfcff129d1f7db5260","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-12","para":"55-12","html":"
Because Entity B bases its assessment of effectiveness on changes in spot prices, the change in the fair value of the forward contract attributable to changes in the difference between the spot and forward price of rubber would be excluded from the assessment of effectiveness, recognized in earnings through an amortization approach in accordance with paragraph 815-20-25-83A or a mark-to-market approach in accordance with paragraph 815-20-25-83B, and presented in the same income statement line item as the earnings effect of the hedged item in accordance with paragraph 815-20-45-1A.
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This Example illustrates the guidance in Sections 815-20-25, 815-20-35, and 815-25-35 for how an entity may assess hedge effectiveness in a fair value hedge of growing wheat with futures contracts. Assume that the hedge satisfied all of the criteria for hedge accounting at inception.
","snippet":"This Example illustrates the guidance in Sections 815-20-25, 815-20-35, and 815-25-35 for how an entity may assess hedge effectiveness in a fair value hedge of growing wheat with futures contracts. Assume that the hedge …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:757303b19545c3b5204e18ba9878006f0b7fe1ed682b6d26c905321a797fbefd","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-14","para":"55-14","html":"
Entity C has a tract of land on which it is growing wheat. Historically, Entity C has harvested at least 40,000 bushels of wheat from that tract of land. Two months before its expected harvest, Entity C sells 2-month futures contracts for 40,000 bushels of wheat, which it wants to designate as a fair value hedge of its growing wheat, rather than as a cash flow hedge of the projected sale of the wheat after harvest.
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Even though the futures contracts are for the same type of wheat that Entity C expects to harvest in two months, the futures contracts and hedged wheat have different bases because the futures contracts are based on fully grown, harvested wheat, while the hedged item is unharvested wheat with two months left in its growing cycle. Entity C therefore may not automatically assume that the hedge will be highly effective in achieving offsetting changes in fair value.
","snippet":"Even though the futures contracts are for the same type of wheat that Entity C expects to harvest in two months, the futures contracts and hedged wheat have different bases because the futures contracts are based on full…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:db3a0552bab259cad086a003eafef12f33c81a47641633ee393744d4112c461e","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-16","para":"55-16","html":"
To determine whether the futures contracts are expected to be highly effective in providing offsetting changes in fair value for the growing wheat, Entity C would need to estimate and compare the fair value of its growing wheat and of the futures contracts for different levels of wheat prices. Entity C may not base its estimate of the value of its growing wheat solely on the current price of wheat because that price is for grown, harvested wheat. Entity C might, however, use the current price of harvested wheat together with other relevant factors, such as additional production and harvesting costs and the physical condition of the growing wheat, to estimate the current fair value of its growing wheat crop.
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It is unlikely that wheat futures contracts would be highly effective in offsetting the changes in value of growing wheat.
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This Example illustrates the guidance in Sections 815-20-25,815-20-35, and 815-25-35 for how an entity may assess hedge effectiveness in a fair value hedge of a U.S. Treasury bond with put options. Assume that the hedge satisfied all of the criteria for hedge accounting at inception.
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Entity E owns a U.S. Treasury bond and wants to protect itself against the fair value exposure to declines in the price of the bond. Entity E purchases an at-the-money put option on a U.S. Treasury security with the same terms (remaining maturity, notional amount, and interest rate) as the U.S. Treasury bond held and designates the option as a hedge of the fair value exposure of the U.S. Treasury bond. Entity E plans to hold the put option until it expires.
","snippet":"Entity E owns a U.S. Treasury bond and wants to protect itself against the fair value exposure to declines in the price of the bond. Entity E purchases an at-the-money put option on a U.S. Treasury security with the same…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9d911412f5bdc8dd37381287c1e0c0797f2c1f2da596515efb4498d494672257","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-25","para":"55-25","html":"
Because Entity E plans to hold the put option (a static hedge) rather than manage the position with a delta-neutral strategy, it could assess whether it expects the hedge to be highly effective at achieving offsetting changes in fair value by calculating and comparing the changes in the intrinsic value of the option and changes in the price (fair value) of the U.S. Treasury bond for different possible market prices. In assessing the expectation of effectiveness on an ongoing basis, Entity E also must consider the actual changes in the fair value of the U.S. Treasury bond and in the intrinsic value of the option during the hedge period.
","snippet":"Because Entity E plans to hold the put option (a static hedge) rather than manage the position with a delta-neutral strategy, it could assess whether it expects the hedge to be highly effective at achieving offsetting ch…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e4ee04951a738116b5b4e7f5d2023074f9675aa42873bd5edeef525198462646","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-26","para":"55-26","html":"
However, because the pertinent critical terms of the option and the bond are the same in this Example, Entity E could expect the changes in value of the bond attributable to changes in interest rates and changes in the intrinsic value of the option to offset completely during the period that the option is in the money. That is, the hedging relationship will be perfectly effective because Entity E has chosen to exclude changes in the option's time value from the assessment of hedge effectiveness. Entity E may elect to account for changes in the time value of the option through an amortization approach in accordance with paragraph 815-20-25-83A or through a mark-to-market approach in accordance with paragraph 815-20-25-83B. Under either of those approaches, it should present the portion of excluded components recognized in earnings in the same income statement line item as the earnings effect of the hedged item in accordance with paragraph 815-20-45-1A.
","snippet":"However, because the pertinent critical terms of the option and the bond are the same in this Example, Entity E could expect the changes in value of the bond attributable to changes in interest rates and changes in the i…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:048569c13a9c8492fed52e61d4b8a82b62cd0231b4a1359dc1cefe52f64db3da","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-27","para":"55-27","html":"
This Example illustrates the guidance in Sections 815-20-25, 815-20-35, and 815-25-35 for how an entity may assess hedge effectiveness in a fair value hedge of an embedded purchased option with a written option. Assume that the hedge satisfied all of the criteria for hedge accounting at inception.
","snippet":"This Example illustrates the guidance in Sections 815-20-25, 815-20-35, and 815-25-35 for how an entity may assess hedge effectiveness in a fair value hedge of an embedded purchased option with a written option. Assume t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9ba6dc48fa49606ff9c095986b938f5d6749128bb9a31092872dd296a065c11a","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-28","para":"55-28","html":"
Entity F issues five-year, fixed-rate debt with an embedded (purchased) call option and, with a different counterparty, writes a call option to neutralize the call feature in the debt. The embedded call option and the written call option have the same effective notional amount, underlying fixed interest rate, and strike price. (The strike price of the option in the debt usually is referred to as the call price.) The embedded option also can be exercised at the same times as the written option. Entity F designates the written option as a fair value hedge of the embedded prepayment option component of the fixed-rate debt.
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To assess whether the hedge is expected to be highly effective in achieving offsetting changes in fair value, Entity F could estimate and compare the changes in fair values of the two options for different market interest rates. Because this Subtopic does not permit derivative instruments, including embedded derivatives whether or not they are required to be accounted for separately, to be separated into components, Entity F can only designate a hedge of the entire change in fair value of the embedded purchased call option. The resulting changes in fair value will be included currently in earnings. Changes in the fair value of the written option also will be included currently in earnings and presented in the same income statement line item as the earnings effect of the hedged item. Any mismatch between the changes in fair values of the hedging instrument and the hedged item attributable to the hedged risk, thus, will be automatically reflected in earnings. (The hedge is likely to have some earnings effect because the premium for the written call option is unlikely to be the same as the premium for the embedded purchased call option.)
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The following Cases illustrate application of the guidance in Sections 815-20-25, 815-20-35, and 815-25-35 to a fair value hedge of a commodity inventory:
  1. a
    The terms of the hedging derivative have been negotiated such that the hedging relationship is perfectly effective (Case A).
  2. b
    The hedging relationship is not perfectly effective (Case B).
","snippet":"The following Cases illustrate application of the guidance in Sections 815-20-25, 815-20-35, and 815-25-35 to a fair value hedge of a commodity inventory:\n(a) The terms of the hedging derivative have been negotiated such…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:66614b910129a60b07399821c684f538c1bfbc41501de8f83140878250ac1258","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-31","para":"55-31","html":"
To simplify the illustration and focus on basic concepts, the derivative instrument in Cases A and B is assumed to have no time value. In practice, a derivative instrument used for a fair value hedge of a commodity would have a time value that would change over the term of the hedging relationship. The changes in that time value may be accounted for through an amortization approach in accordance with paragraph 815-20-25-83A or a mark-to-market approach in accordance with paragraph 815-20-25-83B. Under either of those approaches, the portion of excluded components recognized in earnings should be presented in the same income statement line item as the earnings effect of the hedged item in accordance with paragraph 815-20-45-1A.
","snippet":"To simplify the illustration and focus on basic concepts, the derivative instrument in Cases A and B is assumed to have no time value. In practice, a derivative instrument used for a fair value hedge of a commodity would…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9df30480770a6020a244e527fc6fe9e0e571c34c833d515f327fb1f346c3e118","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-32","para":"55-32","html":"
Other Examples in this Section illustrate accounting for the time value component of a derivative instrument.
","snippet":"Other Examples in this Section illustrate accounting for the time value component of a derivative instrument.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:607f3e18ea1193ae9dc46c29ad2d56cf8d7f1c7645deb65b4bcd8ef22eb18582","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-33","para":"55-33","html":"
For simplicity, commissions and most other transaction costs, initial margin, and income taxes are ignored unless otherwise stated. Assume that there are no changes in creditworthiness that would alter the effectiveness of the hedging relationship.
","snippet":"For simplicity, commissions and most other transaction costs, initial margin, and income taxes are ignored unless otherwise stated. Assume that there are no changes in creditworthiness that would alter the effectiveness …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c5138f4142043c6f649636f349c840bfdbb27fd6fac35074c203da00d4669272","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-34","para":"55-34","html":"
Cases A and B share all of the following assumptions:
  1. a
    Entity ABC decides to hedge the risk of changes during the period in the overall fair value of its entire inventory of Commodity A by entering into a derivative instrument, Derivative Z.
  2. b
    On the first day of Period 1, Entity ABC enters into Derivative Z and neither receives nor pays a premium (that is, the fair value at inception is zero).
  3. c
    Entity ABC designates the derivative instrument as a hedge of the changes in fair value of the inventory due to changes in the price of Commodity A during Period 1.
  4. d
    The hedging relationship qualifies for fair value hedge accounting. Entity ABC will assess effectiveness on a quantitative basis both initially and subsequently by comparing the entire change in fair value of Derivative Z with the change in the market price of the hedged commodity inventory.
","snippet":"Cases A and B share all of the following assumptions:\n(a) Entity ABC decides to hedge the risk of changes during the period in the overall fair value of its entire inventory of Commodity A by entering into a derivative i…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c808bc7c9fed40bdf174a0b5bf51ab5d4546008d2498c0ae9517bb2cab00f255","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-35","para":"55-35","html":"
In this Case, Entity ABC expects the hedge to be perfectly effective because both of the following conditions exist:
  1. a
    The notional amount of Derivative Z matches the amount of the hedged inventory (that is, Derivative Z is based on the same number of bushels as the number of bushels of the commodity that Entity ABC designated as hedged).
  2. b
    The underlying of Derivative Z is the price of the same variety and grade of Commodity A as the inventory at the same location.
","snippet":"In this Case, Entity ABC expects the hedge to be perfectly effective because both of the following conditions exist:\n(a) The notional amount of Derivative Z matches the amount of the hedged inventory (that is, Derivative…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c1e450caf46871935e80864817b2aaa2255336f77d09fd9c727db3a667cf3e15","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-36","para":"55-36","html":"
At inception of the hedge, Derivative Z has a fair value of zero and the hedged inventory has a carrying amount of $1,000,000 and a fair value of $1,100,000. On the last day of Period 1, the fair value of Derivative Z has increased by $25,000, and the fair value of the inventory has decreased by $25,000. The inventory is sold, and Derivative Z is settled on the last day of Period 1. The following table illustrates the accounting for the situation described in this Case.
","snippet":"At inception of the hedge, Derivative Z has a fair value of zero and the hedged inventory has a carrying amount of $1,000,000 and a fair value of $1,100,000. On the last day of Period 1, the fair value of Derivative Z ha…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1c16608ee3f1094c6039b5c4767418d31d1fa0f1b55a2f45a78fd2b33e13dc60","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-37","para":"55-37","html":"
If Entity ABC had sold the hedged inventory at the inception of the hedge, its gross profit on that sale would have been $100,000. This Case illustrates that, by hedging the risk of changes in the overall fair value of its inventory, Entity ABC recognized the same gross profit at the end of the hedge period even though the fair value of its inventory decreased by $25,000.
","snippet":"If Entity ABC had sold the hedged inventory at the inception of the hedge, its gross profit on that sale would have been $100,000. This Case illustrates that, by hedging the risk of changes in the overall fair value of i…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0e3faefb91604827621eaa547e67a3ce7195e1037024cf91861de839fd8f68b0","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-38","para":"55-38","html":"
The hedge in Case A was perfectly effective because the gain on Derivative Z exactly offsets the loss on the inventory. However, in this Case, assume the terms of Derivative Z do not perfectly match the inventory and its fair value has increased by $22,500 as compared with the decline in fair value of the inventory of $25,000. The mismatch of $2,500 has to be recognized in earnings and presented in the same income statement line item as the earnings effect of the hedged item. The following table illustrates the accounting for the situation described in this Case.
","snippet":"The hedge in Case A was perfectly effective because the gain on Derivative Z exactly offsets the loss on the inventory. However, in this Case, assume the terms of Derivative Z do not perfectly match the inventory and its…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:41a0a5f01cdac615ea312d35562352fd35fe7df2ff27cd272ef2b55990f9b7f0","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-39","para":"55-39","html":"
The difference between the effect on earnings in Case B and the effect on earnings in Case A is $2,500.
","snippet":"The difference between the effect on earnings in Case B and the effect on earnings in Case A is $2,500.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:51fd05e919604595f0c8f727a995a0bb98f8a18e0a0ae19bf72e67eb9dc002db","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-40","para":"55-40","html":"
This Example demonstrates the guidance in Subtopic 815-20 and this Subtopic as applied to the mechanics of reporting an interest rate swap used as a fair value hedge of an interest-bearing liability. It is not intended to demonstrate how to compute the fair value of an interest rate swap or an interest-bearing liability. This Example has been simplified by assuming that the interest rate applicable to a payment due at any future date is the same as the rate for a payment due at any other date (that is, the yield curve is flat). Although that is an unrealistic assumption, it makes the amounts used easier to understand without detracting from the purpose of the Example. For simplicity, commissions and most other transaction costs, initial margin, and income taxes are ignored unless otherwise stated. Assume that there are no changes in creditworthiness that would alter the effectiveness of the hedging relationship.
","snippet":"This Example demonstrates the guidance in Subtopic 815-20 and this Subtopic as applied to the mechanics of reporting an interest rate swap used as a fair value hedge of an interest-bearing liability. It is not intended t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f49bd9adf446c8d25a1d70c121799aa454a8ea6b6048968053d228cb66993a41","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-41","para":"55-41","html":"
The fair values of the interest rate swap in this Example are determined using the zero-coupon method. The zero-coupon method is not the only acceptable method. Explanations of other acceptable methods of determining the fair value of an interest rate swap can be obtained from various published sources. Fair values also may be available from dealers in interest rate swaps and other derivative instruments.
","snippet":"The fair values of the interest rate swap in this Example are determined using the zero-coupon method. The zero-coupon method is not the only acceptable method. Explanations of other acceptable methods of determining the…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6045e4a62895d8539405da4e3d6ff08c4140e8ee9c84e679d673f107ce7cedd0","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-42","para":"55-42","html":"
In this Example, the term and notional amount of the interest rate swap match the term and principal amount of the interest-bearing liability being hedged. The fixed and variable interest rates used to determine the net settlements on the interest rate swap match the current yield curve, and the sum of the present values of the expected net settlements is zero at inception. Thus, paragraphs
815-20-25-102 through 25-106
permit the reporting entity to assume perfect effectiveness. Assessment of effectiveness at one of the interest rate swap's repricing dates would confirm the validity of that assumption.
","snippet":"In this Example, the term and notional amount of the interest rate swap match the term and principal amount of the interest-bearing liability being hedged. The fixed and variable interest rates used to determine the net …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5db39ad39724bb26b8b95e9e509b56bac7630e8697742fe8477113f9171dfdd3","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-43","para":"55-43","html":"
A shortcut method (see paragraphs
815-20-25-102 through 25-106
) can be used to produce the same reporting results as the method illustrated in this Example. This shortcut is only appropriate for a fair value hedge of a fixed-rate asset or liability using an interest rate swap and only if the assumption of perfect effectiveness is appropriate. The steps in the shortcut method are as follows:
  1. a
    Determine the difference between the fixed rate to be received on the interest rate swap and the fixed rate to be paid on the bonds.
  2. b
    Combine that difference with the variable rate to be paid on the interest rate swap.
  3. c
    Compute and recognize interest expense using that combined rate and the fixed-rate liability's principal amount. (Amortization of any purchase premium or discount on the liability also must be considered, although that complication is not incorporated in this Example.)
  4. d
    Determine the fair value of the interest rate swap.
  5. e
    Adjust the carrying amount of the interest rate swap to its fair value and adjust the carrying amount of the liability by an offsetting amount.
","snippet":"A shortcut method (see paragraphs 815-20-25-102 through 25-106) can be used to produce the same reporting results as the method illustrated in this Example. This shortcut is only appropriate for a fair value hedge of a f…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:45f152cfff74347caa5552784ab13b86d9c0d5b4ee17b3a5709ad149530c8afb","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-44","para":"55-44","html":"
Amounts determined using the shortcut method and the facts in this Example will match the amounts in paragraph 815-25-55-48 even though the shortcut does not involve explicitly amortizing the hedge accounting adjustments on the debt. That is, the quarterly adjustments of the debt and explicit amortization of previous adjustments will have the same net effect on earnings as the shortcut method.
","snippet":"Amounts determined using the shortcut method and the facts in this Example will match the amounts in paragraph 815-25-55-48 even though the shortcut does not involve explicitly amortizing the hedge accounting adjustments…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:70e0e09842082acf364bac1024dd2847f157bab142b164704ff284a6d4b5e47d","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-45","para":"55-45","html":"
A slightly different shortcut method for interest rate swaps used as cash flow hedges is illustrated in Example 6 (see paragraph 815-30-55-24).
","snippet":"A slightly different shortcut method for interest rate swaps used as cash flow hedges is illustrated in Example 6 (see paragraph 815-30-55-24).","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9fb6d69c2f994598f55f6a6969932753cfad288942f016948411fcd9b57e0f44","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-46","para":"55-46","html":"
On July 1, 20X1, Entity ABC borrows $1,000,000 to be repaid on June 30, 20X3. On that same date, Entity ABC also enters into a two-year receive-fixed, pay-variable interest rate swap. Entity ABC designates the interest rate swap as a hedge of the changes in the fair value of the fixed-rate debt attributable to changes in the designated benchmark interest rate. Entity ABC designates changes in London Interbank Offered Rate (LIBOR) swap rates as the benchmark interest rate in hedging interest rate risk. The terms of the interest rate swap and the debt are as follows.
","snippet":"On July 1, 20X1, Entity ABC borrows $1,000,000 to be repaid on June 30, 20X3. On that same date, Entity ABC also enters into a two-year receive-fixed, pay-variable interest rate swap. Entity ABC designates the interest r…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c51c78b19aee55e1b7df1caa4bcaf269858b366ecfa9d5d14d9869348c0db045","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-47","para":"55-47","html":"
The USD LIBOR rates that are in effect at inception of the hedging relationship and at each of the quarterly reset dates are assumed to be as follows.
","snippet":"The USD LIBOR rates that are in effect at inception of the hedging relationship and at each of the quarterly reset dates are assumed to be as follows.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f147ad87100fa947ae94b819fe9037dfec8b0c7414f4f00a6c400381f3a8f6ee","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-48","para":"55-48","html":"
The following table summarizes the fair values of the debt and the interest rate swap at each quarter end, the details of the changes in the fair values during each quarter (including accrual and payment of interest, the effect of changes in rates, and level-yield amortization of hedge accounting adjustments), the expense for each quarter, and the net cash payments for each quarter. The calculations of fair value of both the debt and the interest rate swap are made using LIBOR. (A discussion of the appropriate discount rate appears in paragraph 815-20-25-111.)
","snippet":"The following table summarizes the fair values of the debt and the interest rate swap at each quarter end, the details of the changes in the fair values during each quarter (including accrual and payment of interest, the…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f1cb404c100e5e43ed9fa3632263847f1eb944e5a67e5b7ba5d81cd5b8ae65c2","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-49","para":"55-49","html":"
The preceding table demonstrates two important points that explain why the shortcut method described in paragraphs
815-25-55-43 through 55-45
produces the same results as the computation in the preceding table if the hedging relationship is perfectly effective:
  1. a
    In every quarter, the effect of changes in rates on the interest rate swap completely offsets the effect of changes in rates on the debt. That is as expected because the hedge is perfectly effective.
  2. b
    In every quarter except the last when the principal is repaid, the expense equals the cash payment.
","snippet":"The preceding table demonstrates two important points that explain why the shortcut method described in paragraphs 815-25-55-43 through 55-45 produces the same results as the computation in the preceding table if the hed…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6f3e59a405cce35a1cac635dabee263b1e4cd394b85cb8bbdd1eed7cf1a1cb81","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-50","para":"55-50","html":"
The following table illustrates the computation of interest expense using the shortcut method described in paragraphs
815-25-55-43 through 55-45
. The results are the same as the results computed in the preceding table.
","snippet":"The following table illustrates the computation of interest expense using the shortcut method described in paragraphs 815-25-55-43 through 55-45. The results are the same as the results computed in the preceding table.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e14e1fec07c4842cfb8f4a46685d1a81989d7681537d0a0533bb90c1e27c638c","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-51","para":"55-51","html":"
As stated in the introduction to this Example, a flat yield curve is assumed for simplicity. An upward-sloping yield curve would have made the computations more complex. Paragraph 815-25-55-47 would have shown different interest rates for each quarterly repricing date, and the present value of each future payment would have been computed using a different rate (as described in paragraph 815-25-55-41). However, the basic principles are the same. As long as the hedging relationship meets the criteria for the shortcut method, perfect effectiveness can be assumed.
","snippet":"As stated in the introduction to this Example, a flat yield curve is assumed for simplicity. An upward-sloping yield curve would have made the computations more complex. Paragraph 815-25-55-47 would have shown different …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6187e5ba2c9e88294af57db75f4d34852935f9577a02445c28a3771c9ff8aafc","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-52","para":"55-52","html":"
In this Example of a fair value hedge of fixed-rate interest-bearing debt, it is assumed that Entity ABC elects to immediately begin amortizing the adjustments of the carrying amount of the fixed-rate debt while the hedge is still in place. Because the change in fair value of the interest rate swap attributable to the passage of time is recognized as interest expense by Entity ABC, the amounts recorded as expenses in the table in paragraph 815-25-55-48 would be eligible for capitalization under Subtopic 835-20.
","snippet":"In this Example of a fair value hedge of fixed-rate interest-bearing debt, it is assumed that Entity ABC elects to immediately begin amortizing the adjustments of the carrying amount of the fixed-rate debt while the hedg…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:56496b4b500824013d4fcb9513e66fddb5c36e94a57fa577bab5bcee3a00d043","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-53","para":"55-53","html":"
This Example illustrates one method that could be used pursuant to paragraph 815-20-25-12(f)(2) in determining the hedged item's change in fair value attributable to changes in the benchmark interest rate. Other methods could be used in determining the hedged item's change in fair value attributable to changes in the benchmark interest rate as long as those methods meet the criteria in that paragraph. For simplicity, commissions and most other transaction costs, initial margin, and income taxes are ignored unless otherwise stated. Assume that there are no changes in creditworthiness that would alter the effectiveness of the hedging relationship.
","snippet":"This Example illustrates one method that could be used pursuant to paragraph 815-20-25-12(f)(2) in determining the hedged item's change in fair value attributable to changes in the benchmark interest rate. Other methods …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:bf89d243c0e7e76a4b75ae69c51c8b6946e536fdad0d6dfe788159124e8251f1","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-54","para":"55-54","html":"
On January 1, 20X0, Entity GHI issues at par a $100,000 BBB-quality 5-year fixed-rate noncallable debt instrument with an annual 10 percent interest coupon. On that date, Entity GHI enters into a 5-year interest rate swap based on the LIBOR swap rate and designates it as the hedging instrument in a fair value hedge of the $100,000 liability. Under the terms of the interest rate swap, Entity GHI will receive fixed interest at 7 percent and pay variable interest at LIBOR. The variable leg of the interest rate swap resets each year on December 31 for the payments due the following year. This Example has been simplified by assuming that the interest rate applicable to a payment due at any future date is the same as the rate for a payment at any other date (that is, the yield curve is flat). During the hedge period, the gain or loss on the interest rate swap will be recorded in earnings. The Example assumes that immediately before the interest rate on the variable leg resets on December 31, 20X0, the LIBOR swap rate increased by 50 basis points to 7.50 percent, and the change in fair value of the interest rate swap for the period from January 1 to December 31, 20X0, is a loss in value of $1,675.
","snippet":"On January 1, 20X0, Entity GHI issues at par a $100,000 BBB-quality 5-year fixed-rate noncallable debt instrument with an annual 10 percent interest coupon. On that date, Entity GHI enters into a 5-year interest rate swa…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e34feceac3cffa7a8254a0653ac01b986089d84d0110654ccc6a2a4a53f84ae1","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-55","para":"55-55","html":"
Under this method, the change in a hedged item's fair value attributable to changes in the benchmark interest rate for a specific period is determined as the difference between two present value calculations that use the remaining cash flows as of the end of the period and reflect in the discount rate the effect of the changes in the benchmark interest rate during the period.
  1. a
    Subparagraph superseded by Accounting Standards Update No. 2017-12.
  2. b
    Subparagraph superseded by Accounting Standards Update No. 2017-12.
","snippet":"Under this method, the change in a hedged item's fair value attributable to changes in the benchmark interest rate for a specific period is determined as the difference between two present value calculations that use the…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:fd9c9010b4d3db16fc65f8578a529971e43d1cf2989d3f3539ff5e6fef191d85","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-56","para":"55-56","html":"
Both present value calculations are computed using the estimated future cash flows for the hedged item, which would be either its remaining contractual coupon cash flows or the LIBOR benchmark rate component of the remaining contractual coupon cash flows determined at hedge inception as illustrated by the following Cases:
  1. a
    Using the full contractual coupon cash flows (Case A)
  2. b
    Using the LIBOR benchmark rate component of the contractual coupon cash flows (Case B).
","snippet":"Both present value calculations are computed using the estimated future cash flows for the hedged item, which would be either its remaining contractual coupon cash flows or the LIBOR benchmark rate component of the remai…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3a26a834b7d2c5db7e02220843a1be455b0f780be73eae09abebc9a0d21e9f98","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-56A","para":"55-56A","html":"
This Example illustrates two approaches for computing the change in fair value of the hedged item attributable to changes in the benchmark interest rate. This Subtopic does not specify the discount rate that must be used to calculate the change in fair value of the hedged item.
","snippet":"This Example illustrates two approaches for computing the change in fair value of the hedged item attributable to changes in the benchmark interest rate. This Subtopic does not specify the discount rate that must be used…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c5d00624c19dc28eb10b83245b3dd9c9f1a95fe13e335152f3eb3297066fcd04","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-56B","para":"55-56B","html":"
In Cases A and B in this Example, Entity GHI presents the total change in the fair value of the hedging instrument (that is, the interest accruals and all other changes in fair value) in the same income statement line item (in this case, interest expense) that is used by Entity GHI to present the earnings effect of the hedged item before applying hedge accounting in accordance with paragraph 815-20-45-1A.
","snippet":"In Cases A and B in this Example, Entity GHI presents the total change in the fair value of the hedging instrument (that is, the interest accruals and all other changes in fair value) in the same income statement line it…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b732fcd6723d85e284f946371a9b630a4149d1acdcea82669362515c7489fa59","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-57","para":"55-57","html":"
In this Case, assume Entity GHI elected to calculate the change in the fair value of the hedged item attributable to interest rate risk on the basis of the full contractual coupon cash flows of the hedged item. Accordingly, both present value calculations in accordance with paragraph 815-25-55-55 are computed using the remaining contractual coupon cash flows as of the end of the period and the discount rate that reflects the change in the designated benchmark interest rate during the period. The method chosen by Entity GHI in this Case requires that the discount rate be based on the market interest rate for the hedged item at the inception of the hedging relationship. The discount rates used for those present value calculations would be, respectively:
  1. a
    The discount rate equal to the market interest rate for that hedged item at the inception of the hedge adjusted (up or down) for changes in the benchmark rate (designated as the interest rate risk being hedged) from the inception of the hedge to the beginning date of the period for which the change in fair value is being calculated
  2. b
    The discount rate equal to the market interest rate for that hedged item at the inception of the hedge adjusted (up or down) for changes in the designated benchmark rate from the inception of the hedge to the ending date of the period for which the change in fair value is being calculated.
","snippet":"In this Case, assume Entity GHI elected to calculate the change in the fair value of the hedged item attributable to interest rate risk on the basis of the full contractual coupon cash flows of the hedged item. According…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b65d91d28dc3fa5dfbc4a40d43fcdca2abed07d16b0799ea1631a5b5efc1997d","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-58","para":"55-58","html":"
Entity GHI elected to subsequently assess hedge effectiveness on a quantitative basis. In Entity GHI's quarterly assessments of hedge effectiveness for each of the first three quarters of year 20X0 in this Example, there was zero change in the hedged item's fair value attributable to changes in the benchmark interest rate because there was no change in the LIBOR swap rate. However, in the assessment for the fourth quarter 20X0, the discount rate for the beginning of the period is 10 percent (the hedged item's original market interest rate with an adjustment of zero), and the discount rate for the end of the period is 10.50 percent (the hedged item's original market interest rate adjusted for the change during the period in the LIBOR swap rate [+ 0.50 percent]).
","snippet":"Entity GHI elected to subsequently assess hedge effectiveness on a quantitative basis. In Entity GHI's quarterly assessments of hedge effectiveness for each of the first three quarters of year 20X0 in this Example, there…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:8da97b77f271e44b3eda3d31e308c05f0a8f06f530ae641ed1f6c2f0a7c0103f","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-59","para":"55-59","html":"
Calculate the present value using the end-of-period discount rate of 10.50 percent (that is, the beginning-of-period discount rate adjusted for the change during the period in the LIBOR swap rate of 50 basis points).
","snippet":"Calculate the present value using the end-of-period discount rate of 10.50 percent (that is, the beginning-of-period discount rate adjusted for the change during the period in the LIBOR swap rate of 50 basis points).","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:01f4dfb6feaf06c5be599e257eed7f5da656164238655fb6800260f6a0eb4fd3","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-60","para":"55-60","html":"
The change in fair value of the hedged item attributable to the change in the benchmark interest rate is $100,000 - $98,432 = $1,568 (the fair value decrease in the liability is a gain on debt).
","snippet":"The change in fair value of the hedged item attributable to the change in the benchmark interest rate is $100,000 - $98,432 = $1,568 (the fair value decrease in the liability is a gain on debt).","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c5e0a50c450af41b30e4a7ed38275c6e6975566c3812b8e0ac061da831e9a3e0","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-61","para":"55-61","html":"
When the change in fair value of the hedged item ($1,568 gain) attributable to the risk being hedged is compared with the change in fair value of the hedging instrument ($1,675 loss), a mismatch of $107 results that will be reported in earnings, because both changes in fair value are recorded in earnings. The change in the fair value of the hedging instrument will be presented in the same income statement line item as the earnings effect of the hedged item in accordance with paragraph 815-20-45-1A.
","snippet":"When the change in fair value of the hedged item ($1,568 gain) attributable to the risk being hedged is compared with the change in fair value of the hedging instrument ($1,675 loss), a mismatch of $107 results that will…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:37c30022d4092c0a926f761a6f1bead883449fc5d5d54fd6356ebf2b2211e652","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-61A","para":"55-61A","html":"
In this Case, assume Entity GHI elected to calculate the change in the fair value of the hedged item attributable to interest rate risk on the basis of the benchmark rate component of the contractual coupon cash flows determined at hedge inception. Accordingly, both present value calculations in accordance with paragraph 815-25-55-55 are computed using the remaining benchmark rate component of contractual coupon cash flows as of the end period and the discount rate that reflects the change in the designated benchmark rate during the period. The discount rates used by Entity GHI in this Case would be, respectively:
  1. a
    The benchmark rate (designated as the interest rate risk being hedged) as of the beginning date of the period for which the change in fair value is being calculated
  2. b
    The designated benchmark rate as of the ending date of the period for which the change in fair value is being calculated.
","snippet":"In this Case, assume Entity GHI elected to calculate the change in the fair value of the hedged item attributable to interest rate risk on the basis of the benchmark rate component of the contractual coupon cash flows de…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:21c221c12a200a92599cfd03817330fbc096b8d790eeeedb5dba800244f9c248","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-61B","para":"55-61B","html":"
Entity GHI elected to subsequently assess hedge effectiveness on a quantitative basis. In Entity GHI's quarterly assessments of hedge effectiveness for each of the first three quarters of year 20X0, there was no change in the hedged item's fair value attributable to changes in the benchmark interest rate because there was no change in the LIBOR swap rate. However, in the assessment for the fourth quarter 20X0, the discount rate for the beginning of the period is 7 percent, and the discount rate for the end of the period is 7.50 percent reflecting the change during the period in the LIBOR swap rate. The change in fair value of the hedged item attributable to the change in the benchmark interest risk for the period January 1, 20X0, to December 31, 20X0, is a gain of $1,675, calculated as follows.
","snippet":"Entity GHI elected to subsequently assess hedge effectiveness on a quantitative basis. In Entity GHI's quarterly assessments of hedge effectiveness for each of the first three quarters of year 20X0, there was no change i…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7504f52c497922e561a299a159193c76e7fc728e5bc23cf6e083a62f9ae142cf","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-61C","para":"55-61C","html":"
Because the change in fair value of the hedged item ($1,675 gain) attributable to the risk being hedged is the same as the change in fair value of the hedging instrument ($1,675 loss), there is perfect offset and, therefore, a zero net earnings effect.
","snippet":"Because the change in fair value of the hedged item ($1,675 gain) attributable to the risk being hedged is the same as the change in fair value of the hedging instrument ($1,675 loss), there is perfect offset and, theref…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2827663dd9a251587b01518ca1cdc2ec4205fc43158be32fe92df9b97a0516b4","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-62","para":"55-62","html":"
This Example illustrates application of the guidance in Sections 815-20-25, 815-20-35, and 815-25-35 to a fair value hedge of a firm commitment to purchase an asset for a price denominated in a foreign currency. In this Example, the hedging instrument and the firm commitment are denominated in different foreign currencies. Consequently, although the hedge is highly effective at achieving offsetting changes in fair value, the hedge is not perfectly effective, and there will be an earnings effect. (The entity in the Example could have designed a perfectly effective hedge by using a hedging instrument denominated in the same foreign currency as the firm commitment with terms that match the appropriate terms in the firm commitment.)
","snippet":"This Example illustrates application of the guidance in Sections 815-20-25, 815-20-35, and 815-25-35 to a fair value hedge of a firm commitment to purchase an asset for a price denominated in a foreign currency. In this …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:880a0860bd9bc1db22efea696bed7d4d0b8e9284a8f329d1f64a02b650bc65f3","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-63","para":"55-63","html":"
Entity MNO's functional currency is the U.S. dollar (USD). On February 3, 20X7, Entity MNO enters into a firm commitment to purchase a machine for delivery on May 1, 20X7. The price of the machine will be 270,000 Swiss francs (CHF 270,000). Also on February 3, 20X7, Entity MNO enters into a forward contract to purchase 240,000 Euros (EUR 240,000) on May 1, 20X7. Entity MNO will pay USD 0.6125 per EUR 1 (a total of USD 147,000), which is the current forward rate for an exchange on May 1, 20X7. Entity MNO designates the forward contract as a hedge of its risk of changes in the fair value of the firm commitment resulting from changes in the USD-CHF forward exchange rate.
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Entity MNO will assess effectiveness by comparing the overall changes in the fair value of the forward contract to the changes in fair value in USD of the firm commitment due to changes in USD-CHF forward exchange rates. Entity MNO expects the forward contract to be highly effective as a hedge because all of the following conditions exist:
  1. a
    EUR 240,000 is approximately equal to CHF 270,000 at the May 1, 20X1, forward exchange rate in effect on February 3, 20X7.
  2. b
    Settlement of the forward contract and the firm commitment will occur on the same date.
  3. c
    In recent years, changes in the value in USD of EUR over three-month periods have been highly correlated with changes in the value in USD of CHF over those same periods.
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Although the hedging relationship has been determined to be highly effective at achieving offsetting changes in fair value, the hedge will not be perfectly effective and the difference between changes in the USD equivalent of EUR 240,000 (the notional amount of the forward contract) and changes in the USD equivalent of CHF 270,000 (the amount to be paid for the machine) will affect earnings. The difference between the spot rate and the forward exchange rate is not excluded from the assessment of hedge effectiveness because changes in the fair value of the firm commitment are being measured using forward exchange rates. Therefore, the entire change in the fair value of the hedging instrument will be presented in earnings in the same income statement line item as the earnings effect of the hedged item. If the hedged item were a foreign-currency-denominated available-for-sale debt security instead of a firm commitment, Topic 830 would have required its carrying value to be measured using the spot exchange rate. In that case, the spot-forward difference would have been recognized currently in earnings in the same income statement line item as the earnings effect of the hedged item if it was included in the assessment of effectiveness. The spot-forward difference also may be excluded from the assessment of effectiveness and accounted for through either an amortization approach or a mark-to-market approach in accordance with paragraph 815-20-25-83A or paragraph 815-20-25-83B.
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The forward exchange rates in effect on certain key dates are assumed to be as follows.
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The USD equivalent and changes in the USD equivalent of the forward contract and the firm commitment, the changes in fair value of the forward contract and the firm commitment, and the earnings effect of the hedge on those same key dates are shown in the following table. A 6 percent discount rate is used in this Example.
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This Subtopic requires that Entity MNO recognize currently in earnings all changes in fair values of the forward contract. Because Entity MNO is hedging the risk of changes in fair value of the firm commitment attributable to changes in the forward exchange rates, this Subtopic also requires recognizing those changes currently in earnings. Section 815-20-45 requires that those changes be presented in earnings in the same income statement line item as the earnings effect of the hedged item.
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On May 1, 20X7, Entity MNO fulfills the firm commitment to purchase the machine and settles the forward contract. The entries illustrating fair value hedge accounting for the hedging relationship and the purchase of the machine are summarized in the following table.
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To simplify this Example and focus on the effects of the hedging relationship, other amounts that would be involved in the purchase of the machine by Entity MNO (for example, shipping costs and installation costs) have been ignored.
","snippet":"To simplify this Example and focus on the effects of the hedging relationship, other amounts that would be involved in the purchase of the machine by Entity MNO (for example, shipping costs and installation costs) have b…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9b3499114e123ff7de11880eb6fab042ddacbbe65cba38b6901c0f1e20806b33","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-71","para":"55-71","html":"
The effect of the hedge is to recognize the machine at its price in CHF (CHF 270,000) translated at the forward rate in effect at the inception of the hedge (USD 0.5454 per CHF 1).
","snippet":"The effect of the hedge is to recognize the machine at its price in CHF (CHF 270,000) translated at the forward rate in effect at the inception of the hedge (USD 0.5454 per CHF 1).","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f77517bad586bc69619f6180440e769fe652cb402bc9ef9732c27db75f5185a4","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-72","para":"55-72","html":"
This Example illustrates application of the guidance in Sections 815-20-25, 815-20-35, and 815-25-35 to a fair value hedge of the LIBOR swap rate in a $100 million A1-quality 5-year fixed-rate noncallable debt. Assume that an entity elected to calculate the change in the fair value of the hedged item attributable to LIBOR interest rate risk using the full contractual coupon cash flows of the hedged item.
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On April 3, 20X0, Global Tech issues at par a $100 million A1-quality 5-year fixed-rate noncallable debt instrument with an annual 8 percent interest coupon payable semiannually. On that date, Global Tech enters into a 5-year interest rate swap based on the LIBOR swap rate and designates it as the hedging instrument in a fair value hedge of the $100 million liability. Under the terms of the interest rate swap, Global Tech will receive a fixed interest rate at 8 percent and pay variable interest at LIBOR plus 78.5 basis points (current LIBOR 6.29 percent) on a notional amount of $101,970,000 (semiannual settlement and interest reset dates). A duration-weighted hedge ratio was used to calculate the notional amount of the interest rate swap necessary to offset the debt's fair value changes attributable to changes in the LIBOR swap rate.
","snippet":"On April 3, 20X0, Global Tech issues at par a $100 million A1-quality 5-year fixed-rate noncallable debt instrument with an annual 8 percent interest coupon payable semiannually. On that date, Global Tech enters into a 5…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:49081208aee000f3595f1e47263787ef22e8900cce85cdbb72c7b4b18700afb0","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-74","para":"55-74","html":"
This Example has the following assumptions:
  1. a
    PV01 debt = 4.14
  2. b
    PV01 interest rate swap = 4.06
  3. c
    Hedge ratio = PV01 debt / PV01 interest rate swap = 4.14/4.06 = 1.0197
  4. d
    Interest rate swap notional = 1.0197 x $100 million = $101,970,000.
  5. e
    For simplicity, commissions and most other transaction costs, initial margin, and income taxes are ignored unless otherwise stated. Assume that there are no changes in creditworthiness that would alter the effectiveness of the hedging relationship.
","snippet":"This Example has the following assumptions:\n(a) PV01 debt = 4.14\n(b) PV01 interest rate swap = 4.06\n(c) Hedge ratio = PV01 debt / PV01 interest rate swap = 4.14/4.06 = 1.0197\n(d) Interest rate swap notional = 1.0197 x $1…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5bfb957d15c292607707ca9dcf30dfc6e6878208ce73285ffb9e72cd782669e4","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-75","para":"55-75","html":"
The Example assumes that the LIBOR swap rate increased 100 basis points to 7.29 percent on June 30, 20X0. The change in fair value of the interest rate swap for the period from April 3 to June 30, 20X0, is a loss of $4,016,000. The change in fair value of the debt attributable to changes in the benchmark interest rate for the period April 3 to June 30, 20X0, is calculated as follows.
","snippet":"The Example assumes that the LIBOR swap rate increased 100 basis points to 7.29 percent on June 30, 20X0. The change in fair value of the interest rate swap for the period from April 3 to June 30, 20X0, is a loss of $4,0…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:114e965c7271a9ea386159f832d6612ed62adf464ee158a53cf499427e242f47","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-76","para":"55-76","html":"
As of June 30, 20X0, 9.5 periods remain and the cash flows are discounted at 9 percent, determined as the initial 8-percent yield plus a 100 basis point increase attributable to the 100 basis point increase in the LIBOR swap rate. The accrual for the first quarter interest was excluded. The following journal entries illustrate the interest rate swap and debt fair value changes, attributable to changes in the LIBOR swap rate, excluding accruals.
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The net earnings effect of the hedging relationship was $240,380 because of the mismatch between the change in the fair value of the hedging instrument and the change in fair value of the hedged item. In accordance with paragraph 815-20-45-1A, Global Tech presents the entire change in the fair value of the hedging instrument (including interest accruals and all other changes in fair value) in the same income statement line item (in this case, interest expense) that is used by Global Tech to present the earnings effect of the hedged item before applying hedge accounting.
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Paragraph superseded by Accounting Standards Update No. 2017-12.
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Paragraph superseded by Accounting Standards Update No. 2017-12.
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Paragraph superseded by Accounting Standards Update No. 2017-12.
","snippet":"Paragraph superseded by Accounting Standards Update No. 2017-12.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:47df0e4d912e133e1c745d565594167a44efa634e53a54242cf522b5daec05a5","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-84","para":"55-84","html":"
This Example illustrates a circumstance in which statutory remedies for default constitute a disincentive for nonperformance in applying the definition of a firm commitment. Entity A enters into an agreement to purchase 4,000 barrels of a common solvent from a chemical entity at $200 per barrel on June 1, 2000. The provisions of the agreement do not include a specific disincentive for nonperformance that is sufficiently large to make performance probable. However, the laws of the legal jurisdiction to which the agreement is subject provide a disincentive for nonperformance if Entity A does not take delivery of the barrels pursuant to the agreement. The solvent is not readily convertible to cash. Therefore, because the governing legal jurisdiction provides statutory rights to pursue remedies for default equivalent to the damages suffered, the agreement includes a disincentive for nonperformance that is sufficiently large to make performance probable for purposes of applying the definition of a firm commitment.
","snippet":"This Example illustrates a circumstance in which statutory remedies for default constitute a disincentive for nonperformance in applying the definition of a firm commitment. Entity A enters into an agreement to purchase …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:cd0458a5543c031bd6aee0c26e4e0751c2cc49b8fcbd8cb40f281c57d6b8df20","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-85","para":"55-85","html":"
This Example illustrates the application of paragraph 815-25-35-11 involving the interaction of hedge accounting and measurement of credit losses in Subtopic 326-20 on financial instruments measured at amortized cost. The following Cases also illustrate the effect of the two approaches to calculate the change in the fair value of the hedged item attributable to interest rate risk discussed in paragraph 815-25-35-13 on that interaction, as follows:
  1. a
    Using the full contractual coupon cash flows (Case A)
  2. b
    Using the benchmark rate component of the contractual coupon cash flows (Case B).
","snippet":"This Example illustrates the application of paragraph 815-25-35-11 involving the interaction of hedge accounting and measurement of credit losses in Subtopic 326-20 on financial instruments measured at amortized cost. Th…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:cac004d71955a05f4363ce36bab64cb7420a16461ee8ab7a37a5360214f35959","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-86","para":"55-86","html":"
Entity A formally documents a qualifying fair value hedge (for fair value changes attributable to changes in the designated benchmark interest rate) between a fixed-rate loan receivable from Entity B and an interest rate swap. The 5-year, fixed-rate loan to Entity B has a principal amount of $1,000,000 payable at maturity and interest payable annually at a 10 percent rate. For simplicity, commissions and most other transaction costs, initial margin, and income taxes are ignored unless otherwise stated. Assume that there are no changes in creditworthiness that would alter the effectiveness of the hedging relationship.
","snippet":"Entity A formally documents a qualifying fair value hedge (for fair value changes attributable to changes in the designated benchmark interest rate) between a fixed-rate loan receivable from Entity B and an interest rate…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5a2778ecbc5886b7d9f1b9c0e750549a1d1a2c3322096eadf5f76439a501336b","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-87","para":"55-87","html":"
One year after inception of the hedging relationship, the following conditions exist:
  1. a
    Subparagraph superseded by Accounting Standards Update No. 2017-12.
  2. b
    There has been an adverse change to Entity B's creditworthiness.
  3. c
    The LIBOR swap rate (the designated benchmark interest rate) has decreased from 6 percent to 5.5 percent.
","snippet":"One year after inception of the hedging relationship, the following conditions exist:\n(a) Subparagraph superseded by Accounting Standards Update No. 2017-12.\n(b) There has been an adverse change to Entity B's creditworth…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e316f6a3924f8fc4abceaaa2ebd58b9d56662f57a408fa3d45e0bd8ef37c473f","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-88","para":"55-88","html":"
Assume that the repayment of the loan is not dependent on the underlying collateral. In applying the requirements of Subtopic 326-20 to the loan, Entity A evaluates the loan for credit losses on an individual basis because it does not have similar risk characteristics with other loans in the portfolio and uses a discounted cash flow approach. Entity A determines that the present value of expected future cash flows discounted at the loan's effective interest rate at inception of the loan is $930,000. (See row C in the table in paragraph 815-25-55-90, which presents calculations—at the end of the first year of the loan's term—of the net present value of current estimates of expected future cash flows based on the loan's original effective interest rate.)
","snippet":"Assume that the repayment of the loan is not dependent on the underlying collateral. In applying the requirements of Subtopic 326-20 to the loan, Entity A evaluates the loan for credit losses on an individual basis becau…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:fea7c4a1983e9fda92033571fb73ea6b95610f551192c5e6408e4f397dc63942","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-88A","para":"55-88A","html":"
In this Case, assume that the entity elected to calculate fair value changes in the hedged item attributable to interest rate risk using the full contractual coupon cash flows of the hedged item. One year after inception of the hedging relationship, the change in the hedged item's fair value attributable to changes in the LIBOR swap rate (the designated benchmark interest rate) is a gain of $16,022. (See row B in the table in paragraph 815-25-55-90, which presents calculations—at the end of the first year of the loan's term—of the net present value of contractual cash flows based on the loan's original effective interest rate adjusted for a 50 basis point decrease in the LIBOR swap rate.)
","snippet":"In this Case, assume that the entity elected to calculate fair value changes in the hedged item attributable to interest rate risk using the full contractual coupon cash flows of the hedged item. One year after inception…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a61b0074085c83a497f8eceb7870a608bf984d8561a70659a13139bdd4405d2c","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-89","para":"55-89","html":"
After adjusting the amortized cost basis of the hedged loan by $16,022 (pursuant to paragraph 815-25-35-1(b)) for the increase in the hedged item's fair value attributable to changes in the benchmark interest rate, Entity A should apply the guidance in Subtopic 326-20 by doing both of the following:
  1. a
    Comparing the amortized cost basis of the loan after the effect of the fair value hedge, or $1,016,022, to the $944,901 present value of expected future cash flows discounted using the rate that reflects the rate of return implicit in the loan after adjusting the amortized cost basis of the hedged loan pursuant to paragraph 815-25-35-1(b) (that is, 9.5 percent)
  2. b
    Recording an allowance for credit losses (with the offsetting entry charged to expense) for the difference of $71,121 ($1,016,022 - $944,901).
","snippet":"After adjusting the amortized cost basis of the hedged loan by $16,022 (pursuant to paragraph 815-25-35-1(b)) for the increase in the hedged item's fair value attributable to changes in the benchmark interest rate, Entit…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7ddc9d77a733469d9e083481bfb5cdb10fc43c589bf0310457da2d61b1e499fc","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-90","para":"55-90","html":"
Following are calculations (at the end of the first year of the loan's term) of the net present value of the contractual cash flows and the creditor's best estimate of expected future cash flows based on the loan's original effective interest rate and the new implicit rate.
","snippet":"Following are calculations (at the end of the first year of the loan's term) of the net present value of the contractual cash flows and the creditor's best estimate of expected future cash flows based on the loan's origi…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7fa1a6791c3b6a4fe5cea932550a89379bc8bf6b463703da5d0c76124d2ecee8","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-91","para":"55-91","html":"
In this Case, assume that Entity A elected to calculate fair value changes in the hedged item attributable to interest rate risk using the benchmark rate component of the contractual coupon cash flows of the hedged item determined at hedge inception. One year after inception of the hedging relationship, the change in the hedged item's fair value attributable to changes in the LIBOR swap rate (the designated benchmark interest rate) is a gain of $17,526, which is calculated as follows.
","snippet":"In this Case, assume that Entity A elected to calculate fair value changes in the hedged item attributable to interest rate risk using the benchmark rate component of the contractual coupon cash flows of the hedged item …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:76760883cac0f7ae0e7ece8395c7b237d14de7434d7b7fe8c77781c8ef9973cf","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-92","para":"55-92","html":"
After adjusting the amortized cost basis of the hedged loan by $17,526 (in accordance with paragraph 815-25-35-1(b)) for the increase in the hedged item's fair value attributable to changes in the benchmark interest rate, Entity A should apply the guidance in Subtopic 326-20 by doing both of the following:
  1. a
    Comparing the amortized cost basis of the loan after the effect of the fair value hedge, or $1,017,526, to the $946,299 present value of expected future cash flows discounted using the rate that reflects the rate of return implicit in the loan after adjusting the amortized cost basis of the hedged loan in accordance with paragraph 815-25-35-1(b) (that is, 9.45 percent that equates the adjusted amortized costs basis of the loan with the present value of the contractual cash flows of the loan)
  2. b
    Recognizing an allowance for credit losses (with the offsetting entry charged to expense) for the difference of $71,227 ($1,017,526 - $946,299).
","snippet":"After adjusting the amortized cost basis of the hedged loan by $17,526 (in accordance with paragraph 815-25-35-1(b)) for the increase in the hedged item's fair value attributable to changes in the benchmark interest rate…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f3bb0985c656fd04eeca7ca1c92cd0132f7c989d1797296e1b94f87f26acad83","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-93","para":"55-93","html":"
Following are calculations (at the end of the first year of the loan's term) of the net present value of the benchmark rate component of the contractual cash flows and the creditor's best estimate of expected future cash flows based on the loan's original effective interest rate and the new implicit rate. In row B, the net present value at the end of the first year is equal to the net present value of the benchmark rate component of the contractual coupon cash flows discounted at the 5.5 percent benchmark rate.
","snippet":"Following are calculations (at the end of the first year of the loan's term) of the net present value of the benchmark rate component of the contractual cash flows and the creditor's best estimate of expected future cash…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:91c01493f44e039787e6a677557fc467a773a43752923c329e300761a15cf4fc","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-94","para":"55-94","html":"
This Example illustrates the application of paragraphs 815-20-25-12(b)(2)(ii) and 815-25-35-13B to the designation and measurement of a hedged item as a portion of the term of a financial instrument in a hedge of interest rate risk. Assume that Entity S elected to calculate fair value changes in the hedged item attributable to interest rate risk on the basis of the benchmark rate component of the contractual coupon cash flows of the hedged item determined at hedge inception.
","snippet":"This Example illustrates the application of paragraphs 815-20-25-12(b)(2)(ii) and 815-25-35-13B to the designation and measurement of a hedged item as a portion of the term of a financial instrument in a hedge of interes…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a02d6877fd8aea34aed8d11423a194cb25ab7d4768ab1b91ec629ddcd97af214","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-95","para":"55-95","html":"
On January 1, 20X1, Entity S issues a noncallable, 5-year, $100 million debt instrument with a 3 percent semiannual interest coupon. On that date, the issuer also enters into a 2-year interest rate swap with a notional amount of $100 million. Entity S designates the swap as a fair value hedge of the fixed-rate debt attributable to interest rate risk for the first two years of its term in accordance with the guidance in paragraph 815-20-25-12(b)(2)(ii). The swap pays LIBOR and receives a fixed rate of 2 percent, with semiannual payments. The swap has a fair value of zero at inception. The designated benchmark interest rate is the LIBOR swap rate. For ease of calculation, the yield curve is assumed to be flat at the level of the current benchmark interest rate. For simplicity, commissions and most other transaction costs, initial margin, and income taxes are ignored unless otherwise stated. Assume that there are no changes in creditworthiness that would alter the effectiveness of the hedging relationship.
","snippet":"On January 1, 20X1, Entity S issues a noncallable, 5-year, $100 million debt instrument with a 3 percent semiannual interest coupon. On that date, the issuer also enters into a 2-year interest rate swap with a notional a…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ff8672b605cbb730e005499716c28b93b7ef6143f776d759f086638d5bd9f454","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-96","para":"55-96","html":"
This Example assumes that the LIBOR swap rate increased by 50 basis points to 2.5 percent on June 30, 20X1. The change in fair value of the interest rate swap for the period January 1, 20X1, to June 30, 20X1, is a loss in value of $731,633.
","snippet":"This Example assumes that the LIBOR swap rate increased by 50 basis points to 2.5 percent on June 30, 20X1. The change in fair value of the interest rate swap for the period January 1, 20X1, to June 30, 20X1, is a loss i…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9c61a2047642e31e8e260b425886b44e12c0c59fda621096267eb1833632cd13","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-97","para":"55-97","html":"
In calculating the change in fair value of the debt attributable to changes in the benchmark interest rate in accordance with paragraph 815-25-35-13B, Entity S determines that the assumed term of the hedged item is two years because it is hedging only the cash flows associated with the first two years of its debt issuance. The change in fair value of the debt attributable to changes in the benchmark interest rate for the period January 1, 20X1, to June 30, 20X1, is a gain of $731,633, calculated as follows.
","snippet":"In calculating the change in fair value of the debt attributable to changes in the benchmark interest rate in accordance with paragraph 815-25-35-13B, Entity S determines that the assumed term of the hedged item is two y…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2d5f0f654b372776d64ebdf2d6c97fe90d908d26f18e70afa8e933a7247c8351","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-98","para":"55-98","html":"
As of June 30, 20X1, the change in fair value of the debt attributable to the benchmark interest rate is calculated by discounting the benchmark rate component of the contractual coupon cash flows using the benchmark interest rate at June 30, 20X1 (2.5 percent annual rate and 1.25 percent for each semiannual period). The change in fair value of the debt and the change in fair value of the swap result in perfect offset in current-period earnings. In accordance with paragraph 815-20-45-1A, Entity S presents the total change in the fair value of the hedging instrument (that is, the interest accruals and all other changes in fair value) in the same income statement line item (in this case, interest expense) that is used by Entity S to present the earnings effect of the hedged item before applying hedge accounting.
","snippet":"As of June 30, 20X1, the change in fair value of the debt attributable to the benchmark interest rate is calculated by discounting the benchmark rate component of the contractual coupon cash flows using the benchmark int…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e32bd888f583bd37e2c055cce6833867d4b815939bafb2c19e745856578471ae","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-99","para":"55-99","html":"
Although this Example illustrates the hedged item as the first two years of interest payments associated with an existing debt instrument, paragraph 815-20-25-12(b)(2)(ii) permits one interest payment or any consecutive interest payments associated with an existing debt instrument to be designated as the hedged item. An entity also may have one or more separately designated partial-term hedging relationships outstanding at the same time for the same debt instrument. For example, an entity may have 2 outstanding hedging relationships for consecutive interest cash flows in Years 1 and 2 and consecutive interest cash flows in Years 4 and 5 of the 5-year debt instrument.
","snippet":"Although this Example illustrates the hedged item as the first two years of interest payments associated with an existing debt instrument, paragraph 815-20-25-12(b)(2)(ii) permits one interest payment or any consecutive …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:eb4b54c45e850bb605d802a31d13f1e78a01d5a9fc46df696d0c5330dbce3b7f","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-100","para":"55-100","html":"
The following Cases illustrate application of the guidance in Sections 815-20-25, 815-20-35, and 815-25-35 to a fair value hedge of the LIBOR swap rate in a $100 million A1-quality 5-year fixed-rate noncallable debt:
  1. a
    Using the full contractual coupon cash flows (Case A)
  2. b
    Using the benchmark rate component of the contractual coupon cash flows (Case B).
","snippet":"The following Cases illustrate application of the guidance in Sections 815-20-25, 815-20-35, and 815-25-35 to a fair value hedge of the LIBOR swap rate in a $100 million A1-quality 5-year fixed-rate noncallable debt:\n(a)…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:586ce810c71d1b9f096149eb17ce9cb5091619b63b5f9c7364b3d425ba209cb8","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-101","para":"55-101","html":"
On July 2, 20X0, Entity XYZ issues at par a $100 million A1-quality 5-year fixed-rate noncallable debt instrument with an annual 8 percent interest coupon payable semiannually. On that date, Entity XYZ enters into a 5-year interest rate swap based on the LIBOR swap rate and designates it as the hedging instrument in a fair value hedge of interest rate risk of the $100 million liability. Under the terms of the interest rate swap, Entity XYZ will receive a fixed interest rate at 8 percent and pay variable interest at LIBOR plus 200 basis points (current LIBOR 6 percent) on a notional amount of $100 million (semiannual settlement and interest reset dates). For simplicity, commissions and most other transaction costs, initial margin, and income taxes are ignored unless otherwise stated. Assume that there are no changes in creditworthiness that would alter the effectiveness of the hedging relationship. The Example also assumes that the yield curve is flat and that the LIBOR swap rate increased 100 basis points to 7 percent on December 31, 20X0. The change in fair value of the interest rate swap for the period from July 2, 20X0, to December 31, 20X0, is a loss of $3,803,843.
","snippet":"On July 2, 20X0, Entity XYZ issues at par a $100 million A1-quality 5-year fixed-rate noncallable debt instrument with an annual 8 percent interest coupon payable semiannually. On that date, Entity XYZ enters into a 5-ye…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e8e5a63df58361b04aa175e618e2441963caa0bef96b56de64d14eab865781a6","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-102","para":"55-102","html":"
In both Cases A and B in this Example, Entity XYZ presents the total change in the fair value of the hedging instrument (that is, the interest accruals and all other changes in fair value) in the same income statement line item (in this case, interest expense) that is used by Entity XYZ to present the earnings effect of the hedged item before applying hedge accounting in accordance with paragraph 815-20-45-1A.
","snippet":"In both Cases A and B in this Example, Entity XYZ presents the total change in the fair value of the hedging instrument (that is, the interest accruals and all other changes in fair value) in the same income statement li…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9b1182f42278f39191043d966a0fea2f60f6310b5cff0c6e2f7e82e7fbbe1f66","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-103","para":"55-103","html":"
In this Case, assume that Entity XYZ elected to calculate fair value changes in the hedged item attributable to interest rate risk using the full contractual coupon cash flows of the hedged item. The change in fair value of the debt attributable to changes in the benchmark interest rate for the period July 2, 20X0, to December 31, 20X0, is a gain of $3,634,395, calculated as follows.
","snippet":"In this Case, assume that Entity XYZ elected to calculate fair value changes in the hedged item attributable to interest rate risk using the full contractual coupon cash flows of the hedged item. The change in fair value…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7050adbb4eb0150f440f676b89651020371438e5b511c4557863e6d095d34e60","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-104","para":"55-104","html":"
As of December 31, 20X0, the fair value of the debt attributable to interest rate risk is calculated by discounting the full contractual coupon cash flows at the debt's original market rate with a 100 basis point adjustment related to the increase in the LIBOR swap rate (50 basis point adjustment on a semiannual basis). The following journal entries illustrate the interest rate swap and debt fair value changes attributable to changes in the LIBOR swap rate.
","snippet":"As of December 31, 20X0, the fair value of the debt attributable to interest rate risk is calculated by discounting the full contractual coupon cash flows at the debt's original market rate with a 100 basis point adjustm…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4737fa3244fb363ae6adcdc26eadd83c093139fabdfeeea097b871ad825ab007","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-105","para":"55-105","html":"
The net earnings effect of the hedge is $169,448 due to the mismatch between the changes in fair value of the hedging instrument and the hedged item attributable to the changes in the benchmark interest rate.
","snippet":"The net earnings effect of the hedge is $169,448 due to the mismatch between the changes in fair value of the hedging instrument and the hedged item attributable to the changes in the benchmark interest rate.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d44b21826d26a6cea556b624a4e385ef04d524a8bafaed6c329d1e9dea152927","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-106","para":"55-106","html":"
In this Case, assume that Entity XYZ elected to calculate fair value changes in the hedged item attributable to interest rate risk using the benchmark rate component of the contractual coupon cash flows of the hedged item determined at hedge inception. The change in fair value of the debt attributable to changes in the benchmark interest rate for the period July 2, 20X0, to December 31, 20X0, is a gain of $3,803,843, calculated as follows.
","snippet":"In this Case, assume that Entity XYZ elected to calculate fair value changes in the hedged item attributable to interest rate risk using the benchmark rate component of the contractual coupon cash flows of the hedged ite…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0562e64fde307d75d3ab88a64c2e454f54d6f85c449a6fd113a25fe647621ab4","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-107","para":"55-107","html":"
As of December 31, 20X0, the fair value of the debt attributable to interest rate risk is calculated by discounting the benchmark rate component of the contractual coupon cash flows using the benchmark interest rate at December 31, 20X0 (7 percent annual rate; 3.5 percent for each semiannual period). The following journal entries illustrate the interest rate swap and debt fair value changes attributable to changes in the LIBOR swap rate.
","snippet":"As of December 31, 20X0, the fair value of the debt attributable to interest rate risk is calculated by discounting the benchmark rate component of the contractual coupon cash flows using the benchmark interest rate at D…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6a54d6dddc45b090bd0db9e5f26ee26050304020ef19ba1e91b4c24c2c61709d","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},{"citation":"815-25-55-108","para":"55-108","html":"
The net earnings effect of the hedge is zero due to the perfect offset in fair value changes between the hedging instrument and the hedged item attributable to the changes in the benchmark interest rate.
","snippet":"The net earnings effect of the hedge is zero due to the perfect offset in fair value changes between the hedging instrument and the hedged item attributable to the changes in the benchmark interest rate.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b52f8b0678c13d3239d40ab0de7699572bcf6e3c0c2aefbfd9a7bde850d92eb7","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a6b09eb46932b3d6ece33cae2c47ad2495063cdbf9a08c24bfdc52a9a0948a2a","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:08b14f80fa81801c0dbd84de5a681c014703ec5f9cc0ad8c6fc0a87f5ab7e688","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}},"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:08b14f80fa81801c0dbd84de5a681c014703ec5f9cc0ad8c6fc0a87f5ab7e688","downloaded_from":"2026-09-10T01:37:27.953Z","last_downloaded_at":"2026-09-10T01:37:27.953Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480207","source_sha256":"7641cabb756457a062adf84e7e7ff637691bae6dc39b32531132ad7f3a4293ec"}}