Good morning everybody. I just left home. We got to the truck. You can see everything's still all over the bed in the back I have to organize that but I'll give you one guess as to what I'm gonna say next. All right I'll give you a second. Yahtzee you win. I'm in a rush But I wanted to share a special little thing here might when I got to the shop this morning batteries on the truck dead Now I can't figure out what I left on So my batteries might be going it's the second time now that the batteries have just unexpectedly died But it was really cold when I brought it in there. Remember it was full of snow I had to get some fix some wiring on the lights and stuff because the snow had buggered up some of the wiring I Fixed that all my batteries were dead. So I want to give a shout out to Jim right now Thank you so much. This is my booster pack. It's a 6,000 amp avapowl Is that how you pronounce that avapowl? I got to test this thing out today Fired up my truck like that. It was amazing. I just see here's the booster cables in here, right? You just hook them up into here. I had this thing charged already. My batteries were completely dead couldn't turn over the engine tick tick Whoa truck started up just like that. It sounded just I don't know what was with the sound effects there, but Amazing what these little things can do this boosted my old model truck Just like that. So again last time I got sort of stranded in Brainer You guys remember that I had to call a tow truck spent like two hundred and fifty dollars or whatever it was in getting a boost I Now never have to worry about that again because if that happens like it did just now in my shop I got a big booster pack on the shop like a big booster itself, but I didn't need that This jumped the truck is just fine and this isn't an ad for avapowl or anything But this is a brand that works if you want my opinion Jim has been such a good friend to us over the years and has helped us out countless times and I'm so thankful So thankful for everything you've done Jim to make our lives easier and to make sure that we never find ourselves In a rut anywhere. There are really good people in this world speaking to everybody now You see the worst of them on TV all the time on the news don't pay attention to that bad news sells The majority people out there are amazing people and there's a select few people out there that are just godsend They're just amazing people Jim you're one of them now He sent me this booster pack just to make sure that I would never be stranded again, and I just want to let you know now it worked I wouldn't have been stranded. I was in my shop, but at least I got a test in the shop So now I know if I ever am out out in the wild out on the road, and I have a dead battery I'll be just fine. Thank you very much. You want to know something?  And every time we found ourselves in a time of need He's reached out We never had we never asked for anything. We've actually said no on a couple of occasions said no We can do this on our own. We really appreciate that. We really appreciate the offer to help But we got this But every time we have been sort of in a snag or in a rut Throughout the years. He has always been there as As a steady friend to be like, hey, you need some help. I'm here All the way back from when you remember our little wiener dog wiener. That's what we call him. His name is Frankie When he had IVDD in his back and he had to go all the way to Saskatoon for surgery and we had just bought a house We just drained all of our accounts. We were in a very bad financial spot. Technically we over We went over and above what we should have done We got into the house that we maybe a little bit too much for us We ended up selling it and getting making money off the house So it was it was a good deal in the end But we were right in a spot where we had sort of placed ourselves Precariously on a financial cliff, right? We're like we took a risk we gambled and The gamble paid off like I said, we made good money off it, but right when we were on that ledge there That's when one of our dogs Decided that you know, it's time to have some IV while I didn't decide he had IVD Which is the back issue yet going for surgery and it was that was like a seven eight thousand ten thousand dollar surgery We had no money and so we had reached out and said hey like This is something we weren't expecting. We were in a bad spot now Now we're in a much better spot for stuff like that to happen. Even though we just did go through IVF which did Put a bit of a weight on our shoulders, but we're doing fine. Don't worry about us and He stepped up and helped said anything you guys need just let me know I'm here to help He made sure that we were able to get to Saskatoon, you know, everything was covered that We were all all right Friends like that that you know, we've never actually met in person But they're there for you every step they exist out there and I almost get choked up a little bit Talking about it because I've never even met this man and yet. He's been so kind and so nice over the years and Again, he saw that I had trouble with my truck that I broke down one that I had to pay $250 for a tow truck just to come and hook on to me and boost me He said no, no, no, you don't gotta worry about he sent me a nice booster pack So that that would never happen to me again like wow Even when we say no, no, no, we got this we got this. He's still there saying hey, I know you got this but Here if you need me, you know, thank you Jim. This is what I'm trying to say here. You know who you are out there The bottom of our hearts like wow Thank you.   One big thing that I've learned being online here is that the internet is filled with amazing people They're just quiet It's the it's the obnoxious loud ones that get all the attention, right? They're obnoxious. They're loud and they're doing things that they Shouldn't be doing and they get all the attention. Everyone's like is this what the world's come to what has happened to our countries, right? No Our nations here Canada and the United States are still filled with amazing amazing people. They're just quiet They don't make a lot of noise Make a plan and plan for the plan to change The plans have changed This is trucking don't forget so we're not going to Feed River Falls today now now we're going to Canora, Ontario And there'd be pretty much nothing for me to do early next week So I'm gonna grab a load today that I'm gonna deliver on Monday That'll give me something to get next week started And then tomorrow we're gonna go to feed River Falls and grab one load and come back with it Then Monday morning leave with that other load we're picking up today That's the way to keep everybody busy and Turn everybody's happy. See if it changes again. I think he's full Snow clearing turn left on time 812 Now that's a snowblower. I think he's one of those blow my driveway 30 seconds This plan is gonna work out a lot better and trucking everything sort of Nothing's ever for sure for sure until it's done Nothing's ever written in stone until it's done then you can write it in stone that it has been done Who knows like I still got like 20 minutes till I'm at my shipper here things could change I don't know they cancel the load or remember when I was in Quebec a few weeks ago I got right to the shipper and they had a work accident and they had to shut the whole plant down And my logo cancel because of it. I did get reimbursed though for that. I didn't get a truck not used Feed or whatever they whatever they call that, you know when they you order a truck and it shows up and then For whatever reason the load gets cancelled when the truck's already there Gotta pay the fuel to get there So I didn't get reimbursed with the fuel at least not really for my time, but it was something but it that kind of stuff happens what what I'm getting at here is that it's Nothing's ever for sure for sure until the freight is on my trailer strapped down tarped and I'm leaving with it And I get a good distance away and then I deliver it and then once it's delivered that load That plan happened sometimes you wish things could be a little bit more concrete But you know right now my plan is to drive down this road in this direction until the shipper anything between here and there is Still up in the air until I arrive there and then you get it must be nice those guys who work, you know 95 74 whatever your hours are Scheduled day get scheduled days off. You know when you're gonna be home. You get to go home and watch TV in the evening See your family I'm not saying this out of spite. I'm just saying Some of us we got to work 70 hour weeks It's a good thing. I really like my job There's no way I'd work 70 hours a week at a job. I hate it. There's no way you couldn't make Okay, maybe you could make me if it was like a million dollars a year talk I have my price well, I Arrived at a pretty decent time. What time is it now? one o'clock Just so seems that a bunch of other guys arrived at a pretty decent time, too Three guys in front of me in the lineup that about four guys in the staging area getting loaded right now two guys in the tarp shed and All of those trucks have got to get tarped Loaded tarped anyway and out of here before I can tarp my load There's only two bays to tarp in now.  You're not allowed on top of your load here They're very serious about that So you get the machine To put the tarps over the load for you Then you tack it down on all four corners make sure that it won't fly away And then you move out of the tarp shed And you finish bungeeing it outside the tarp shed is only there to get the tarps over the load But so often I'd say more than half the guys well over half They use the tarp shed as a place to do the entire tarp job bungeeing Everything sometimes it's a load that hangs over the back, you know tagging it and flagging it Excuse me. I need some water but so It should take you no longer than 30 minutes Inside the tarp shed, you know, you throw the tarps over Get out of there finish bungeeing it down outside The next guy can come in because the next guy sitting outside He can't put his tarps over his load until you get your butt out of there Right because you're not allowed to go on top of his load outside the tarp shed So he's tarpsheds that he can put his tarps over get his butt out of the tarp shed So that the next guy behind him can get in there and do the same thing, right? And there's signs all over the place. Let's say this right like the tarp shed is only to put your tarps over Once you have it tacked down that won't fly away and get out of here and finish tarping and bungeeing Outside then big signs in there, right? Plus you have to like there's orientation that you think that you go through where they tell you this, right? 50 75% of the guys I don't want this to devolve into complaining. This is an educational moment I don't I don't have these all the time. I say I'm an entertainer not an educator The tarp shed shouldn't be more than 30 minutes truck Not three hours Because imagine this I've got one two three four five six seven guys Getting loaded in front of me two guys in the tarp shed Just the guys getting loaded here because they haven't started tarping yet seven guys if they each took three hours Now two at a time so two four six Three six nine, that'd be nine hours that I'd have to wait if they all took three hours So they don't all do that but Nine hours and then I've start my load yet So just remember be Courteous out there a lot of places have these tarp sheds a lot of places for liability reasons They don't want you on top of your load They don't want you falling off and hurting yourself. First of all, they don't want that to happen here They don't want you to get hurt second of all it shuts down all of operations when someone gets seriously hurt, right? And it hurts everybody hurts everybody us picking up the loads hurts them making the freight hurts everybody So we don't want injuries to happen here So wherever you go around North America, and you find yourself a tarp shed read the instructions carefully I'm not gonna say every single place is exactly like this one, but read the instructions carefully And if there's people waiting to get in behind you Let's all try to do the courteous thing and get out of that tarp shed as soon as we can I Personally would really appreciate that if we did that So with all that being said seven guys in front of me, let's say they're all pretty good at what they do They don't take too long tarping I should be out of here and It's gonna be a few hours. I don't know how I'm gonna make it home for supper one o'clock now. Oh, no No, I don't think I will Even if I was getting loaded right now about two hours till I'd be rolling out I'd be rolling out here at three o'clock at the earliest of the two two hour drive back Got to drop the trailer bring the truck into the shop park and get it ready for night three Four or five I'd be back. I don't think so. No, I'm not gonna make it for supper tonight That's disappointing because my parents are having What is it string?  I won't be able to make it All right, so Show you my work It's on a flat bed, so it's arranged a little differently There's four lifts here to any side four there so eight and then there's three stack in there That's why I got that strap there keep my taps keep my tops from flopping too much I got this here to hold that back. So it doesn't slip forward on me Oh, that's that we're loaded headed home We might be home for a late supper. I might make it home. It's 3 30 now 4 35 30 Really late supper. We'll see what we can do. I probably won't make it, but maybe straight up a hill Source it in a girl's weight of about 78,000 pounds Perfectly loaded and legal for the U.S. On trans Canada highway highway 17 a Back towards Manitoba with this one for now. It's Friday when I'm filming this That means I can't deliver this till Monday's turn left on trans Canada highway highway 17 a So this is a Monday problem now. It's time to go home Still got some more work to do tomorrow on Saturday yet, but that was by choice Had a couple days off in the middle of the week for the egg retrieval IVF surgery procedure My wife a little bit harder this time than the last time It's just quite a bit of pain the day after so I stayed home as long as I could I Was supposed to go out the next day pretty much Ended up staying home the next day It's been a day. It's always something so I got all blue in here You can see that I look like a pack rat hoarder, which Maybe I am oh no I'll get rid of some stuff, but all the stuff that's over here Was over here. I had to clear some space because as you'll see here this cable Broke off or detached from up there So there is a overhead door guy Coming to fix this in the morning. So I just cleared some space for him here moved everything over there for now Didn't have time to work on anything on the truck I just met well not messing around with the door We're trying to figure out what was going on because first of all I got here the door opened just fine And then when I tried to close it only went halfway. I was like, huh weird I didn't want to force it. So I brought it all the way back up and I put it all the way back down Felt a little harder than usual to bring it down and then I'll snipe her tiling ting ting ting ting of the this cable it just Detached is it broken Detached I don't know. I'm not a garage door guy. I'm a truck driver guy. I Do that I don't do this and I don't have time for this right now because I got to go home I missed supper at my parents house, but they brought supper to our house So I'm gonna go catch them yet before they go home and I want to eat some of their food They brought some food for us Very excited. So I don't have time for this right now repair guys coming in the morning. This area is cleared That's a tomorrow problem Thanks for watching today everybody. I'm gonna run home real quick and grab some food. I Have way too much stuff. I would or maybe just looks like a lot of stuff And I just I just need shelving and I need to organize it. We tried that once right? I tried organizing it It just sort of organized the mess. It went from a mess to an organized mess Yeah, it's time to go through and purge get rid of all kinds of things that I don't need like those helmets I don't need those helmets those were from when I was younger and had a snowmobile and snowmobile around I don't need those anyone. I could For the quad now. I'd buy new ones. Anyways, I don't like them. They're they're not old, but they're still good And get rid of them. Don't need to store them There's no fire here Why do I have that I'll get rid of that all kinds of physical TV right there Find spots without maybe hanging on the wall it is what it is. Okay worry with us tomorrow My book


Hello, and welcome to the session in which we will discuss cash flow hedge. It's very important to understand the cash flow hedge and the context of hedging. So it's very important that you understand what our hedging instrument, what is a fair value hedge in order to understand a cash flow hedge. Let's review real quick for a fair value hedge. What's hedging? Hedging means protecting the fair value, notice the fair value of an asset, liability or a firm commitment. And this is what we discussed in the prior session. Also we reported the fair value and changes in those fair value in the income statement. So we reported the fair value changes on the income statement for a fair value hedge. So what is a cash flow hedge on the other hand? Cash flow hedge is hedging, protecting the cash flow associated with an asset, liability or a forecasted transaction. So notice the difference. Here we are protecting the cash flow associated with that asset liability or forecasted transaction. Here we are protecting the fair value of that asset liability or firm commitment. Let's illustrate this point. It's worth illustrating. So if you have a bonds payable, which is a liability, you may want to protect the fair value, the value of the bonds payable of the liability itself. Well if that's the case, you have a fair value hedge. This bonds payable would require us to make payments, interest payments, cash payment. The payments that we make is the cash flow associated with the bonds itself, with the fair value of the bond. So if we are protecting the bonds payable itself, it's a fair value hedge. If we are protecting the cash associated with the bond, then it's a cash flow hedge because it's the cash flow associated. Now for a fair value hedge, we talked about firm commitment. For a cash flow hedge, we have what's called forecasted transaction. What is a forecasted transaction? A forecasted transaction is a planned. So you are planning to enter into a transaction with another party with no commitments or obligation or rights. So you plan to buy something. So you plan to buy cotton for your production. You plan to buy oranges for your manufacturing facilities. You plan to buy milk, so on and so forth. It's simply a planned transaction. And a planned transaction, since it did not occur yet, it's going to require cash flow. Well guess what? You can protect that cash flow. So cash flow is hedging the exposure to the cash flow risk. You have an uncertain cash flow, for example, a variable debt with variable interest rate. So you want to convert maybe the floating risk. The floating rate into a fixed rate. Because you are concerned you have a variable cash flow and you want to protect that. Uncertain cash flow. You would report cash flow hedges at fair value, just like fair value hedges. They are reported at fair value as well. They are reported. They're both reported at fair value. The difference is this. Any gains and losses are reported in OCI, eventually they get released. To income, we'll see later on how they get released. But initially they are reported in OCI. Also cash flow hedge will need to qualify for hedge accounting. What is hedge accounting? To designate a transaction as a hedge accounting, you need to have a documentation, especially when you are hedging a forecasted transaction. Remember a forecasted transaction, transaction that's going to happen in the future. And what you are telling FASB is I want to have a hedge accounting for something that not happened yet. If that's what you want to do, make sure you document what you are doing. You need a formal documentation. Why are you entering into this hedging contract? What is the riskiness of this forecasted transaction? Are you hedging the fair value of a liability asset or a cash flow? So you need to determine whether it's a fair value hedge or a cash flow hedge. And you have to spell this out in the documentation. Describe the effectiveness of the hedge. So you don't buy an oil contract if you are trying to protect your orange crop. So you have to have a hedge that makes sense that's going to reduce your risk. And we'll talk about hedge effectiveness in another session. You also want to describe the hedging instrument, the derivative that you are using, coal option future, and it must be effective. Also what is the hedging item? What are you trying to protect? So you have to spell all this out in a document in order to qualify for hedge accounting. Just want to make sure just for the CPA exam that cash flow hedge is not eligible for business combination, parent, subsidiary, equity transaction, or the company its own equity. Just know this just in case you saw a multiple choice questions. Now the best way to illustrate the concept of hedging is to actually work an example. Before we take a look at an example, I would like to remind you whether you are an accounting student or a CPA candidate to take a look at my website, farhatlectures.com. I don't replace your CPA review course. I don't replace your accounting course. I provide additional resources for you to do better on the CPA exam and in your accounting courses. How? By providing you resources, lectures, multiple choice, true or false. This is a list of all my accounting courses. My CPA resources are aligned with your Becker, Roger, Wiley, and Gleam. I also give you access to 1500 previously released AI CPA questions in their original format with detailed solution. If you have not connected with me on LinkedIn, please do so and take a look at my LinkedIn recommendation. Like this recording, share it with other connect with me on Instagram. I'm trying to grow my Instagram following Facebook and Twitter. Bye bye. Now let's work an example. On November 1st, Adam Transportation budgeted the need for one million gallons of gasoline for its fleet of trucks for February 20 X5. So here, Adam Transportation needs one million gallons of gasoline. They know they need this much. It's they're forecasting into the future. It's a planned transaction. So what happened is this? Adam enters into a future contract to give Adam company the right and obligation to purchase that one million gallons at $2.50 per gallon. The contract will expire at the end of January. Assume the spot rate and the contract rate are the same. Therefore, there is no value at the inception of the contract on November 1st. Therefore, no entry is required for November 1st. Here's some additional information. You are giving the spot rate on December 31st, the future rate on December 31st, the spot rate on January 18th, the future rate on January 18th. What is the spot rate? The spot rate is how much you can buy the gasoline as of December 31st on that date specifically. And the future rate is how much you'll be able to buy the future contract, the future contract, the future rate of the gasoline on December 31st. Now, what's going to happen is this? We're going to go through series of transactions to illustrate the concept for these dates. So on December 31st, what happened is this? On December 31st, you have a contract that you can buy the gasoline at $2.50. That's the contract. But that same contract is worth $2.90. $2.90 per gallon on December 31st. So what happened on December 31st? On December 31st, your contract is worth 40 cent per each gallon. So what does that mean? It means your value of the contract went up 400,000. Now, be careful. Don't compare the 250 to the 270. You have a future contract. You have a future contract. You enter a future contract. Therefore, you market your future contract to market according to the future market, not according to the spot rate. Therefore, what you do is you debit future contract, an asset, 400,000, and you credit unrealized holding gain loss equity, 400,000. And this is on December 31st. And let's keep track of our T-account for the future contract and unrealized gain and loss. Now, on January 15th, you decided to go ahead and execute and buy the gasoline. The first thing you do is you have a future contract. What's going to happen is the future rate went down to 280. So went down. Well, what happened is you lost 100,000 in value because 10 cent per gallon. So you have to reduce your unrealized holding gain and loss by 100,000. Reduce your future contract by 100,000. And this happened on January 15th. So what you do is you reduce your future contract. You reduce your gain and losses. Now, what's going to happen is this, you're going to go ahead and sell the future contract. The future contract, notice it's worth 300,000. You're going to go ahead and sell it. You're going to sell it. You're going to debit cash, credit future contract, 300,000. OK. And notice what happened. The future contract is closed. Now what you're going to do, you're going to go ahead and buy the gasoline. And when you buy the gasoline, you buy the gasoline at the spot rate. And the spot rate is $2.80. Therefore, you are going to debit gasoline, 2.8 million. And you're going to credit cash 2.8 million. So you bought the gasoline at 2.8 million. Hold on a second. So how did this future contract helped you? Remember, on November 1st, you purchased the contract to buy the gasoline at 250. Well, yes. But you sold that future contract. Indeed, I sold the future contract and I got $300,000 in profit. So what I did, I paid for the gasoline, 2.8 million in cash. But I got 300,000 from the future contract. Therefore, my net cost is 2.5 million. And this is exactly how much I wanted to pay when I enter into this contract on November 1st. On November 1st, I enter into the contract to pay $2.5 per gallon for 1 million. And indeed, I end up paying $2.5 million in gallon. $2.5 million for the gasoline that I need. Notice, I still have 300,000 in unrealized holding gain and loss and equity. Now, what do I need to do with this 300,000? Well, we get rid of this 300,000 when we expense the gasoline. When the gasoline, remember, the gasoline is inventory. It's an asset. What's going to happen, maybe sometime in February or March, we're going to be using that gasoline to operate the business. And it's going to turn into cost of goods sold. Let's assume this happens in the February or early March. It doesn't matter. Something in the future, we're going to expense this gasoline. Once we expense this gasoline, we are going to also reduce our cost of goods sold. We're going to take this gain out. We have $300,000 of gains out. We're going to close the gain. We're going to debit the gain, close the gain. And we are going to reduce our cost of goods sold. And guess what? Look at our cost of goods sold, $2.8 million minus $300,000 from the gain on that future contract. Our cost of goods sold, also $2.5 million. The cash outlay, $2.5 million. That's exactly what we wanted to do. We wanted to pay only $2.5 million for the gasoline. We went into this future contract. We had a cash flow hedge and we only paid $2.5 million because we were concerned in this forecasted transaction. We forecasted that we needed gasoline. And we don't know how much the gasoline will be when we need it in February. So what we did is we went into a cash flow hedge, bought a future contract, and locked our price at $2.5 million. And this is how a future contract work, a derivative instrument work, to create a cash flow hedge. What should you do now? Go to farhatlectures.com. Work multiple choice questions. If you're not a subscriber, subscribe. Invest in yourself, invest in your career. I'm going to help you in your accounting courses. Help you pass the CPA exam. Don't shortchange yourself. Your accounting career is important. Take it seriously. Good luck, study hard, and of course, stay safe.