Hedge Instrument in Accounting and Financial Reporting

Running head: ACCOUNTING AND FINANCIAL REPORTING
Accounting and financial reporting
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1ACCOUNTING AND FINANCIAL REPORTING
Executive summary
Aim of the report is to focus on the hedge instrument used by the ASX listed company
Brambles Ltd. It will focus on the concept of hedge and various advantage and disadvantages
associated with the hedge instrument. The report will highlight the hedge instrument reported
by the entity and the qualifying criteria used by the entity to consider the instrument as hedge.
It will further analyse the recognition and measurement criteria used by the entity for it hedge
instrument.

2ACCOUNTING AND FINANCIAL REPORTING
Table of Contents
Introduction................................................................................................................................3
1. Concept of hedge................................................................................................................3
2. Example of hedge reported in the annual report of Brambles Ltd......................................4
3. Advantages and disadvantages of the hedging instrument to the entity.............................5
4. Measurement of hedging instrument..................................................................................7
Conclusion..................................................................................................................................8
Reference....................................................................................................................................9

3ACCOUNTING AND FINANCIAL REPORTING
Introduction
The report will concentrate on the treatment of hedge presented in the annual report of
the ASX listed company Brambles Ltd. it will focus on the concept of hedge and will talk
about the hedge item presented by the entity in its annual report for the year ended 2018.
Brambles Ltd is the pooling solution entity that is specialised in providing reusable pallets,
containers, pallets and related logistic services. Through its reuse model and share the entity
moves more amount of goods to more number of people in more places as compared to any
other company (Brambles Corporate Site 2019).
1. Concept of hedge
Hedge is the investment approach that protects the investors from risky situation.
Hedging is used for minimizing or offsetting the likelihood that the investor’s assets will lose
the value. Further, it is also used for limiting the loss to the known amount if the value is lost
by asset. Most of the investors use derivatives for hedging which is the financial contract that
generates the value from underlying real asset like stock. The most widely used derivative is
option. It provides the right of buying or selling the stock at specified price within the
prescribed time (Echaust 2014). For instance, the investor buys the stock and if the investor is
in the view that the prices will go up however wants to protect against loss if price drops.
Hence, the investor will hedge the risk with put option. For the small fee the investor will buy
right-to-sell the stock at same price if the same drops. Here the investor will exercise the put
and will earn back the money just invested reduced by the fees. Another strategy of hedging
is diversification under which the investor own different type of asset. If one of the assets
collapses the investor will not lose everything (Wang and Zhao 2015). For instance, most of
the people own bonds for offsetting risk associated with stock ownership. While the stock