Final answer:
The forward points in a hedging forward contract can be recognized based on the fair value changes of the forward points or on a straight-line basis over the contract's life, not immediately upon entering the contract.
Step-by-step explanation:
When only the spot component of a forward contract is designated as the hedging instrument, the forward points can be recognized in different ways.
The forward points may be accounted for based on the change in fair value of the forward points themselves, as this represents the actual gain or loss on the hedge related to the time value component.
Additionally, forward points could also potentially be recognized on a straight-line basis over the life of the forward contract, reflecting an even distribution of the cost or gain over the contract period.
However, they are not recognized immediately upon entering into the forward contract, because these points represent the future time value or interest rate differential between two currencies.