In general, derivative instruments are
A) Not reported in a company's balance sheet because their impact on the company is not yet known.
B) Reported in the balance sheet at fair value and changes in their fair value are reported in earnings.
C) Reported in the balance sheet at historical cost and changes in their fair value are reported in earnings.
D) Reported in the balance sheet at fair value and changes in their fair value are reported in other comprehensive income.

Question

Quizplus · Accepted Answer

Derivative instruments are reported in the balance sheet at fair value, and changes in their fair value are reported in earnings. This is because derivative instruments are considered financial instruments and are subject to fair value accounting. Fair value accounting requires that financial instruments be reported at their fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The changes in fair value are recognized in earnings as gains or losses.

In General, Derivative Instruments Are