When a cash flow hedge is appropriate,the effective portion of the gain or loss on the derivative is
A)deferred using other comprehensive income.
B)recognized immediately at the time the agreement is made.
C)recognized over time,amortized over the period of the agreement.
D)recognized over time,offset by the fluctuation in the value of the hedged asset or liability.

Question

Quizplus · Accepted Answer

When a cash flow hedge is appropriate, the effective portion of the gain or loss on the derivative is deferred using other comprehensive income. This means that the gain or loss is not immediately recognized in the income statement, but instead is recognized in other comprehensive income and then gradually reclassified to the income statement over the period of the hedging instrument. This approach helps to match the timing of the hedge with the timing of the underlying transaction or event that is being hedged.

When a Cash Flow Hedge Is Appropriate,the Effective Portion of the Gain