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This excerpt taken from the BP 20-F filed Mar 4, 2008. Cash
flow hedges This reserve records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge. When the hedged transaction occurs, the gain or loss on the hedging instrument is transferred out of equity to either profit or loss or the carrying value of assets, as appropriate. If the forecast transaction is no longer expected to occur the gain or loss recognized in equity is transferred to profit or loss. This excerpt taken from the BP 6-K filed Mar 13, 2006. Cash flow hedges For cash flow hedges, the effective portion of the gain or loss on the hedging instrument is recognized directly in equity, while the ineffective portion is recognized in profit or loss. Amounts taken to equity are transferred to the income statement when the hedged transaction affects profit or loss, such as when a forecast sale or purchase occurs. Where the hedged item is the cost of a nonfinancial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability.
If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, the hedged transaction ceases to be highly probable, or if its designation as a hedge is revoked, amounts previously recognized in equity remain in equity until the forecast transaction occurs and are transferred to the income statement or to the initial carrying amount of a non-financial asset or liability as above. If a forecast transaction is no longer expected to occur, amounts previously recognized in equity are transferred to profit or loss.
This excerpt taken from the BP 6-K filed Sep 7, 2005. Cash flow
hedges
The Group uses currency derivatives to hedge its exposure to variability in cash flows arising either from a recognized asset or liability or a forecast transaction. The hedged instrument is recognized at fair value on the balance sheet. At maturity of the hedged item, the element deferred in equity is treated in accordance with the nature of the hedged exposure, for example capitalized into the cost of an item of property, plant and equipment, or expensed in the case of a hedge of a tax payment.
Increase (decrease) in caption heading
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