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CA Final · Financial Reporting · Hedge Accounting

Himalaya Foods Ltd is preparing the note on its hedging relationships. The CFO wants the note to describe the hedging instruments used, how the economic relationship between hedged item and hedging instrument is determined for effectiveness assessment, and how the hedge ratio is established. Which statement about this description is correct under Ind AS 107?

Ind AS 107 paragraph 22B says the risk management strategy information should include, but is not limited to, a description of the hedging instruments and their use, how the economic relationship is determined, and how the hedge ratio and sources of ineffectiveness are established.

  1. AIt is required only when the hedge ratio differs from 1:1
  2. BIt is required only for fair value hedges, not cash flow hedges
  3. CThe information should include, but is not limited to, these items, as part of explaining the risk management strategyCorrect
  4. DIt replaces the need to disclose the sources of hedge ineffectiveness

Explanation

Paragraph 22B states that the information should include, but is not limited to, a description of hedging instruments and how they are used, how the economic relationship is determined, and how the hedge ratio is established along with sources of ineffectiveness. It is not limited to particular hedge types or ratios, and it includes sources of ineffectiveness rather than replacing them.

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