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CA Final · Financial Reporting · Hedge Accounting

Kaveri Textiles Ltd uses forward contracts to hedge its foreign currency purchases and applies hedge accounting. Its notes must explain how the hedging instruments are used and how the hedge ratio is set. Which of the following items is expressly included in the description required by Ind AS 107 to explain the entity's risk management strategy for hedge accounting?

Ind AS 107 requires a description of how the entity determines the economic relationship between the hedged item and the hedging instrument for assessing hedge effectiveness, along with the instruments used, how the hedge ratio is established and the sources of ineffectiveness. The other items are irrelevant to hedge disclosures.

  1. AHow the entity determines the economic relationship between the hedged item and the hedging instrument for assessing hedge effectivenessCorrect
  2. BThe personal tax position of the directors approving the hedges
  3. CThe historical cost of all non-derivative assets of the entity
  4. DThe credit rating of the entity's statutory auditor

Explanation

Para 22B requires a description of the hedging instruments used and how, how the entity determines the economic relationship between hedged item and hedging instrument for assessing effectiveness, and how it establishes the hedge ratio and the sources of ineffectiveness. The other options are unrelated to the standard.

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