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CA Final · Financial Reporting · Hedge Accounting

Ganga Foods Ltd applies hedge accounting for foreign currency risk on forecast imports and for interest rate risk on a floating rate loan. The CFO asks what the overall objectives of the hedge accounting disclosures under Ind AS 107 are. Which statement is correct?

Hedge accounting disclosures must explain the risk management strategy and its application, how hedging may affect the amount, timing and uncertainty of future cash flows, and the effect on the balance sheet, statement of profit and loss and statement of changes in equity, only for exposures where hedge accounting is elected.

  1. AThey should provide information about the entity's risk management strategy and how it is applied, how hedging may affect the amount, timing and uncertainty of future cash flows, and the effect of hedge accounting on the balance sheet, statement of profit and loss and statement of changes in equityCorrect
  2. BThey should provide only the notional amounts of hedging instruments
  3. CThey should provide information only about the effect on the statement of profit and loss
  4. DThey apply to all risk exposures of the entity, whether or not hedge accounting is elected

Explanation

Para 21A applies to risk exposures that the entity hedges and for which it elects hedge accounting, and its three objectives are risk management strategy, effect on amount, timing and uncertainty of future cash flows, and effect on balance sheet, profit and loss and changes in equity. The last option is wrong because election of hedge accounting is required.

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