Forward currency contracts

Accounting for currency forward where option start date is in new financial year

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Where a company with an ARD of 31 December takes out a forward contract prior to the year end committing it to purchase a set value of USD (against GBP) at some point between 2 January and 31 March following the year end, are there any accounting entries required to recognise that commitment in the 31 December books?

The USD invoices to be settled will either be in the books at the GBPUSD exchange rate on 31 December, or they will be purchase orders placed for fulfilment in Q1 which wouldn't be recognised at all at the year end date.

Does any potential difference between the committed exchange rate, and the actual exchange rate at 31 December need to be recognised where the liability to purchase has not commenced at that point? Medium sized company reporting under UK GAAP.

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By paul.benny
15th Dec 2023 12:07

Forward fx contracts fall under the financial instruments requirements in s12 of FRS102. Much depends on the specifics and there are different methods you can choose to account for your hedge.

But essentially, yes you need to recognise the gain or loss on your hedge.

Download FRS102 without charge here:

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