This excerpt taken from the BP 6-K filed Mar 13, 2006.
Fair value hedges For fair value hedges, the carrying amount of the hedged item is adjusted for gains and losses attributable to the risk being hedged; the derivative is remeasured at fair value and gains and losses from both are taken to profit or loss. For hedged items carried at amortized cost, the adjustment is amortized through the income statement such that it is fully amortized by maturity. When an unrecognized firm commitment is designated as a hedged item, this gives rise to an asset or liability in the balance sheet, representing the cumulative change in the fair value of the firm commitment attributable to the hedged risk.
The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, the hedge no longer meets the criteria for hedge accounting or the Group revokes the designation.
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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Note 1 - Significant accounting policies - continued
This excerpt taken from the BP 6-K filed Sep 7, 2005.
Fair value hedges
Where fair value hedge accounting is applied to transactions that hedge the Groups exposure to the changes in the fair value of a firm commitment or a recognized asset or liability that are attributable to a specific risk. Under IAS 39 the derivatives designated as hedging instruments are recorded at their fair value in the Groups balance sheet and changes in their fair value are recognized in the income statement. Any gain or loss on the hedged item attributable to the hedged risk is adjusted against the carrying amount of the hedged item and recognized in the income statement.
The existing pay floating interest rate swaps and currency swaps hedging the debt book are highly effective and consequently qualify as fair value hedges for hedge accounting. The full fair value of the swaps has been recognized on the balance sheet and the carrying value of debt is adjusted.
Increase (decrease) in caption heading