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CA Final · Financial Reporting · Hedge Accounting

Gangotri Steels Ltd uses interest rate swaps to hedge floating-rate loans. During the year, a mismatch in the credit risk of the swap counterparty, not anticipated at designation, produced ineffectiveness that was not among the sources described at inception. The finance team debates the required disclosure. Which statement is correct under Ind AS 107?

When other sources of hedge ineffectiveness emerge beyond those expected, the entity must disclose them by risk category and explain the resulting ineffectiveness. This applies in addition to describing expected sources at designation, and there is no threshold linked to the hedging reserve.

  1. AThe entity must disclose these other sources of ineffectiveness by risk category and explain the resulting hedge ineffectivenessCorrect
  2. BNo disclosure is needed because only sources identified at designation are disclosed
  3. CDisclosure is required only if the ineffectiveness exceeds the hedging reserve balance
  4. DThe entity should disclose the sources in aggregate across all risk categories without explanation

Explanation

Paragraph 23E requires that if other sources of hedge ineffectiveness emerge in a hedging relationship, the entity discloses those sources by risk category and explains the resulting ineffectiveness. Limiting disclosure to sources identified at designation (paragraph 23D) ignores 23E. No reserve-balance threshold exists, and aggregating across categories is not permitted.

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