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CA Final · Financial Reporting · Hedge Accounting

Kaveri Textiles Ltd designated forward contracts as cash flow hedges of forecast export sales. In the previous period hedge accounting was used for a forecast sale to a European buyer, but the order was cancelled and the sale is no longer expected to occur. Which disclosure does Ind AS 107 require in the current financial statements in respect of this?

Kaveri must describe the forecast transaction for which hedge accounting was used in the previous period but which is no longer expected to occur. The requirement applies to cash flow hedges and is not satisfied by disclosing only an ineffectiveness amount.

  1. ANo disclosure, because a cancelled forecast transaction is simply reclassified to profit or loss
  2. BA description of the forecast transaction for which hedge accounting had been used in the previous period but which is no longer expected to occurCorrect
  3. COnly the amount of ineffectiveness on the hedge, without any description of the transaction
  4. DA description of the transaction only if the forward contract is still outstanding at the reporting date

Explanation

For cash flow hedges, Ind AS 107 (para 23F) requires a description of any forecast transaction for which hedge accounting had been used in the previous period but which is no longer expected to occur. The requirement does not depend on whether the derivative is still outstanding, and an amount alone does not meet it.

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