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CA Final · Financial Reporting · Classification and Measurement of Financial Assets and Financial Liabilities

Gangotri Steel Ltd. has a fixed-rate borrowing that is designated as a hedged item in a hedge of interest rate risk. Which statement is correct under Ind AS 109 on how the liability is measured?

A financial liability designated as a hedged item remains subject to the normal subsequent measurement rules, and the hedge accounting requirements in paragraphs 6.5.8-6.5.14 are applied to it as well. Designation does not automatically reclassify it to FVTPL or remove it from measurement requirements.

  1. ADesignation as a hedged item removes the liability from the scope of subsequent measurement requirements
  2. BThe liability is applied hedge accounting requirements in paragraphs 6.5.8-6.5.14 in addition to the subsequent measurement rulesCorrect
  3. CThe liability must be reclassified as FVTPL on designation
  4. DThe liability is measured at the higher of the loss allowance and the initial amount

Explanation

Paragraph 5.3.2 says hedge accounting requirements in paragraphs 6.5.8-6.5.14 apply to a financial liability designated as a hedged item, while paragraph 5.3.1 still routes measurement through 4.2.1-4.2.2. Designation does not itself change the classification to FVTPL. The higher-of rule applies to guarantees and below-market commitments only.

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