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Running Head: ACCOUNTING
Discussion Questions- Accounting
A hedge is a mechanism or a way to protect an individual investor from financial loss or other
such related financial circumstance. Basically, in preparing financial statements such as balance
sheet, an organization recognize derivatives instruments including assets and liabilities and those
instruments are measured at fair value (Song, 2013). In hedging the cash flow, the risk being
assessed is exposure to variability or violability, which is attributable to the risk and that has
effect on the income statement. Based on the insight that derivatives are used to mitigate risk
including currency or interest risks, the changes in the fair value is recorded in the income
statement (Machado, 2014). Hence, separation of the changes in value impact other
comprehensive income (OCI) and current income in the income statement.
Machado, M. J. (2014). Reliability in Fair Value of Assets without an Active Market. Advances
in Scientific and Applied Accounting, 319-338.
Song, X. (2013). Fair Value Accounting and Market Efficiency. SSRN Electronic Journal.