CA Final · Financial Reporting · Hedge Accounting

Kaveri Textiles Ltd applies hedge accounting to forecast cotton purchases and to a fixed-rate loan, each hedged for a different risk. While preparing the hedge accounting disclosures required by Ind AS 107, the finance team asks how the 'risk categories' used to separate the information should be determined. Which approach is consistent with Ind AS 107?

Risk categories for hedge accounting disclosures are determined by the risk exposures the entity decides to hedge and for which it applies hedge accounting, and they must be applied consistently across all hedge accounting disclosures, as Ind AS 107 paragraph 21C requires.

1. ADetermine each risk category on the basis of the risk exposures the entity decides to hedge and for which hedge accounting is applied, and use these categories consistently for all hedge accounting disclosuresCorrect
2. BUse the risk categories prescribed in the standard's list of market, credit and liquidity risk, regardless of which exposures are hedged
3. CDetermine risk categories separately for each disclosure paragraph so that each table shows the most favourable grouping
4. DDetermine risk categories on the basis of all risks the entity is exposed to, whether or not they are hedged