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All derivatives should be recognized on the balance sheet at fair value unless the private company simplified approach (discussed in DH 11) is used.

19.4.1 Presentation of fair value and cash flow hedges (post ASU 2017-12)

ASC 815 requires the change in the fair value of a derivative designated in a fair value or cash flow hedge to be presented in the same income statement line item as the hedged item. The change in fair value includes the gain or loss on the derivative included in the effectiveness assessment and any amount related to excluded components that are recognized in income.
Splitting gains and losses into more than one income statement line item is generally not appropriate unless the hedged item or hedged risk(s) impacts multiple line items. It is also generally not appropriate to “recycle” - report changes in fair value in one income statement line item in one period and then reclassifying the gains and losses into another line item in a later period when the derivative is settled in cash.
When the hedged item is a forecasted sale, and the earnings effect of the hedged item would be recorded in the revenue line item under ASC 606, Revenue from Contracts with Customers, the derivative gain or loss should be included in the same line item to comply with ASC 815. However, to comply with ASC 606, we believe that presentation should be accompanied by disclosure of the amount of revenue from contracts with customers. In addition, there should be disclosure of the derivative gains and losses included in each financial statement line item in accordance with the hedging disclosure requirements (see FSP 19.5.4).
If the hedging instrument offsets changes in fair value or cash flows that are reported in more than one income statement line item, the changes in fair value of the hedging instrument should be split among the line items that include the earnings effect of the hedged item. For example, a reporting entity may have a highly effective hedge of the currency risk of interest and principal cash flows of a debt instrument denominated in a foreign currency. In this case, the hedged risk (foreign currency) may impact multiple line items (interest and foreign currency gains and losses). As a result, the changes in fair value of the hedging instrument that relate to the interest cash flows should be reported through interest expense and the changes in fair value that relate to principal cash flows should be recorded in the same line item as the foreign currency gains or losses related to the spot remeasurement of the debt.
See ASC 815-20-55-79W through ASC 815-20-55-79-AD for additional examples of income statement presentation.

19.4.2 Presentation of forecasted transactions (post ASU 2017-12)

For cash flow hedges in which the forecasted transaction is probable of not occurring, ASC 815 does not provide guidance on the income statement presentation of amounts reclassified from accumulated other comprehensive income (AOCI) to earnings.

19.4.3 Presentation of net investment hedges (post ASU 2017-12)

For qualifying net investment hedges, reporting entities are required to present amounts reclassified from AOCI to earnings in the same income statement line item that is used to present the earnings effect of the hedged net investment (e.g., gain on sale of subsidiary).
As for fair value and cash flow hedges, splitting gains and losses into more than one income statement line item or “recycling” the gains and losses by recognizing them in different line items in different periods is generally not appropriate for net investment hedges.
ASC 815 does not prescribe how to present excluded components in net investment hedges.

19.4.4 Presentation of derivatives not in hedges (post ASU 2017-12)

ASC 815 does not provide specific guidance on the income statement presentation of gains and losses of derivatives that are not designated in a hedging relationship. Reporting entities may use derivatives for risk management purposes, but not designate them as hedges under the accounting literature. Some view these derivatives as “economic hedges” and believe they should follow similar income statement presentation as derivatives used in qualifying accounting hedges.
We believe a reporting entity may make a policy election regarding the income statement classification of derivatives that are economic hedges. A reporting entity may either report the fair value fluctuations associated with the derivative (1) in the same line as the hedged item or (2) in another reasonable income statement line item. For example, assume a reporting entity earns revenue in a currency other than its functional currency and executes a foreign currency derivative to hedge that exposure. Although it represents an economic hedge, the reporting entity chooses not to designate this derivative as a hedge under ASC 815. The reporting entity may elect to either report the changes in fair value associated with the derivative in the revenue line or in the income statement with other derivatives not designated in hedging relationships. We believe either is acceptable as long as the policy decision is reasonable, applied consistently, and disclosed.
Splitting gains and losses into more than one income statement line item or “recycling” the gains and losses by recognizing them in different line items in different periods is generally not appropriate.
Question FSP 19-3 discusses how an issuer should classify dividend equivalent payments to a warrant holder in its income statement.
Question FSP 19-3
Reporting entities may issue warrants that are classified as liabilities and recognized at fair value through net income. The terms of these warrants may entitle the holder to dividend payments when dividends are paid to common stockholders.
How should the issuer classify the dividend-equivalent payments to the warrant holder in its income statement?
PwC response
The warrant holder’s right to dividend-equivalent distributions impacts the fair value of the warrant and should be included in determining the change in fair value of the warrant, which is recorded through the income statement. The payment in cash for the actual dividend reduces the recorded amount of the warrant on the balance sheet, representing a partial settlement of the warrant liability and therefore does not impact the income statement. Recognizing settlement payments in one income statement line with an offsetting change in fair value in another income statement line is generally not appropriate.

19.4.5 Presentation by investment companies (post ASU 2017-12)

The accounting guidance does not define “unrealized” or “realized” for the purposes of income statement presentation. An investment company may elect an accounting policy to present changes in the fair value of a centrally-cleared derivative (including futures) in which variation margin payments are considered settlements as an unrealized or realized gain or loss. Investment companies must apply this policy decision consistently. However, investment companies should ensure that their disclosures are transparent with respect to how derivatives are presented in the financial statements.
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