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CA Final · Financial Reporting · Hedge Accounting

Mahi Foods Ltd is preparing the narrative part of its hedge accounting disclosures. Which item must the description of the hedging instruments and strategy include, as a minimum, under Ind AS 107?

The description should include the hedging instruments and how they are used, how the entity determines the economic relationship between hedged item and instrument for assessing effectiveness, and how it establishes the hedge ratio and the sources of ineffectiveness. Listing counterparties or notional amounts alone is inadequate.

  1. AHow the entity determines the economic relationship between the hedged item and hedging instrument for assessing effectiveness, and how it establishes the hedge ratioCorrect
  2. BOnly the names of the banks that are counterparties to the hedging instruments
  3. COnly the notional amounts of the hedging instruments, with no description of their use
  4. DThe hedge ratio only, without any mention of how effectiveness is assessed

Explanation

Ind AS 107 (para 22B) says the information should include, but is not limited to, a description of the hedging instruments and how they are used, how the entity determines the economic relationship between the hedged item and the hedging instrument for assessing effectiveness, and how it establishes the hedge ratio and the sources of ineffectiveness. Counterparty names or notionals alone fall short.

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