Interest rate swaps

[Giannos]

A company was entered into an interest rate swap with the Bank in order to convert its floating borrowing interest rate into fixed. Before the expiration date of the swap contract, the company agreed with the bank to terminate it. At the time of termination, the fair value of the swap was in favor of company and the respective amount of the gain was paid in cash to the company by the bank. Given that no initial cost was paid by the company for the acquisition of the swap contract, the full amount received from the bank for the termination of the swap is a gain for the company. Our question is whether the fair value gains which recognized previously should be passed through P&L or whether should be transferred from revaluation reserve(hedge reserve) to retained earnings?

Thank you

[pub_acco]

The accounting treatment actually depends on a number of factors relating to the hedge accounting, but in the most likely scenario, where you have accounted for the IRS and borrowing as a fully effective cash flow hedging relationship, you will recognize the termination gain through other comprehensive income (cash flow hedges) and apply IFRS 9.6.5.12 (a) to the balance of cash flow hedge reserve.

[hubertd]

Your gain or most of it is already recorded in equity reserve. Now you’re simply monetising your derivative with no pnl impact. Provided the transaction(s) you hedged are still going to happen, you’ll amortise your cashflow reserve accordingly via OCI.