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What is the impact of oci as a result of hedging transaction

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Reference no: EM131800132

Entity A is planning to form its wholly owned subsidiary (Entity S) in U.K.

Entity S's functional currency is pound sterling £. It performs all its transactions in £. It also maintains an intercompany account with its parent company and pays royalty to Entity A at the end of every quarter in £.

The CFO of Entity A would like to know the impact of consolidation of Entity S on its consolidated income statement and cash flows statement.

Entity A, whose functional currency is U.S. dollar $, plans to provide a cash flow hedge for its intercompany account with Entity S through a forward contract. The forward contract is designated as a hedge of the royalty receipts and is expected to be effective.

She has the following questions:

What is the impact of CTA (cumulative translation adjustment) as a result of translation of Entity S consolidation on Entity A's statement of income and statement of cash flows?

What is the impact of OCI as a result of hedging transaction on its statement of income and statement of cash flows?

Does Entity A have any re-measurement or translation adjustment exposure in its statement of income?

Reference no: EM131800132

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