What is a forward contract, and how discounts and premiums on it are treated under US GAAP and IFRS?
Answer:
Forward contract:
A forward agreement is an arrangement or an agreement between two gatherings (Buyer and Seller of future agreement) that gives the purchaser of an agreement to right and commitment to buy the predetermined resource (indicated in the contract) at the contracted cost at a future contracted date. In contrast to future agreements, forward agreements are private arrangements and are not normalized.
Premium treatment under US GAAP :
Forward premium is the point at which the forward or the normal future cost is more prominent than the spot cost. US GAAP does not grant bookkeeping premiums as salary when utilized as a supporting instrument.
Discount treatment under US GAAP :
Forward discount is the point at which the forward or the normal future cost is lower than the spot cost. US GAAP does not license bookkeeping rebates as cost when utilized as a supporting instrument.
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