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CA Final · Financial Reporting · Hedge Accounting

Narmada Power Ltd designates a forward contract as a hedge of the foreign currency risk on a forecast import of equipment. Its other, unhedged commodity exposures are managed without hedge accounting. Under Ind AS 107, to which risk exposures must the hedge accounting disclosures in paragraphs 21B–24F be applied?

The hedge accounting disclosures apply only to risk exposures that the entity hedges and for which it elects to apply hedge accounting. Unhedged exposures, or hedges where hedge accounting is not elected, are outside these particular disclosures, as stated in Ind AS 107 paragraph 21A.

  1. AAll risk exposures of the entity arising from financial instruments, hedged or not
  2. BOnly those risk exposures that the entity hedges and for which it elects to apply hedge accountingCorrect
  3. COnly exposures hedged using derivative instruments, whether or not hedge accounting is elected
  4. DOnly exposures whose hedge is fully effective during the period

Explanation

Paragraph 21A applies the hedge accounting disclosures to risk exposures that an entity hedges and for which it elects hedge accounting. Unhedged commodity exposures and economic hedges without hedge accounting fall outside these disclosures. Effectiveness level is not the test.

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