Derivative Financial Positions part 2: Why?
Quote:
Originally Posted by
Snoopy
The $10.372m figure I refer to above is a 'Derivative Financial Position'.
Something I look for in any set of annual accounts is when a change is presentation happens with no explanation. This year there is an entry for 'Derivative Financial Instruments' in both the asset and liability breakdown of the balance sheet. If you go back to the FY2018 account presentation these entries are not there, although they have been retrospectively written into the FY2018 accounts when the FY2018 balance sheet was restated for comparison purposes in the current year (FY2019).
'Derivative Financial Positions' have really jumped up in size too, and are now over ten times larger on the asset side and around five times larger on the liabilities side (FY2019 Balance Sheet vs FY2018 Balance Sheet). In the FY2019 accounts there is a comprehensive explanation of what these are under note 12. However there appears to be no information as to whether the corresponding numerical entries are 'Fair Value Hedges' or 'Cashflow Hedges'.
To try and unravel my own mystery, I have just re-read note 12 on 'Derivative financial Instruments' in the HGH annual accounts.
At the bottom of the explanatory notes there is this key sentence.
"A fair value gain or loss associated with the effective portion of a derivative designated as a cash flow hedge is recognised initially in the hedging reserve. The ineffective portion of a fair gain or loss is recognised immediately in the Consolidated Statement of Comprehensive Income."
If we now go to the 'Statement of Comprehensive Income', the following entry appears under 'Other Comprehensive Income'.
Effective portion of change in the fair value of derivative financial instruments, net of income tax ($4.762m)
That should translate to a pre income tax figure of: ($4.762m)/(1-0.28) = ($6.614m)
From the previous explanatory quote, this $4.762m must be the ineffective portion of the cash flow hedge. But the total 'Derivative Financial Liability' is listed in the balance sheet valued at $10.372m (presumably after tax is paid?).
So by a process of elimination, the remaining 'Derivative Financial Liability' must be 'fair value asset related'.
This amounts to: $10.372m - $4.762m = $5.610m
Have I got that right?
SNOOPY