CA Final · Financial Reporting · Hedge Accounting

Godavari Pharma Ltd has an interest rate swap hedging a floating rate loan. At inception it identified differences in the timing of interest reset dates between swap and loan as a source of ineffectiveness. During the year, a new source of ineffectiveness arose because the swap counterparty's credit deteriorated sharply, which was not expected at inception. Which disclosure treatment is consistent with Ind AS 107?

The entity discloses both the sources expected at inception and the newly emerged counterparty credit source, each by risk category, and explains the resulting hedge ineffectiveness. Emerging sources of ineffectiveness cannot be ignored just because they were not identified at inception.

1. ADisclose the expected sources of ineffectiveness by risk category, and also disclose the newly emerged source by risk category with an explanation of the resulting hedge ineffectivenessCorrect
2. BDisclose only the sources identified at inception, since later sources are not required
3. CDisclose the new source only if the loan is derecognised
4. DDisclose the new source without explaining the resulting ineffectiveness, as the amount is in profit or loss