CA Final · Financial Reporting · Hedge Accounting

Narmada Chemicals Ltd designates an interest rate swap in a hedge of its floating rate borrowing. At inception, management identifies that differences in the credit risk of the swap counterparty and mismatch in reset dates are expected to cause ineffectiveness. During the year, an additional source of ineffectiveness arises because the loan was partially prepaid, which was not anticipated at inception. Which combination of disclosures does Ind AS 107 require?

The entity must describe by risk category the sources of ineffectiveness expected during the hedge's term, and also disclose, by risk category, any other sources that emerge, such as the unanticipated loan prepayment, explaining the resulting ineffectiveness. Aggregating across risk categories or omitting emerging sources is not acceptable.

1. ADescribe by risk category the sources of ineffectiveness expected to affect the relationship during its term, and disclose and explain any other sources of ineffectiveness that emerge, by risk categoryCorrect
2. BDescribe only the sources identified at inception; later sources need not be disclosed
3. CDisclose only the emerging source, as the inception sources are already known to the market
4. DDisclose the sources of ineffectiveness in aggregate for all risk categories without separation