This excerpt taken from the BP 6-K filed Sep 7, 2005.
Elimination of currently deferred gains and losses from derivatives
Under UK GAAP, gains and losses from derivatives are deferred and recognized in earnings or as adjustments to carrying amounts, as appropriate, when the underlying debt matures or the hedged transaction occurs. Where derivatives that are used to manage interest rate risk, to convert non-US dollar debt, or to hedge other anticipated cash flows are terminated before the underlying debt matures or the hedged transaction occurs, the resulting gain or loss is recognized on a basis that matches the timing and accounting treatment of the underlying debt or hedged transaction.
On transition to IFRS, only assets and liabilities that qualify as such can continue to be recognized. Consequently, all gains and losses that were generated by derivatives used for hedging purposes and deferred in the balance sheet as if they were assets or liabilities, must be eliminated from the transitional balance sheet. This is achieved by transferring gains and losses arising from cash flow hedges to equity pending recycling to income at a later date, and by transferring gains and losses arising from fair value hedges to adjust the carrying value of the hedged item, in this case, finance debt.
Increase (decrease) in caption heading