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CA Final · Financial Reporting · Hedge Accounting

Ratna Power Ltd hedged interest rate risk on a floating-rate loan using a swap. During the year, a difference in the reset dates of the loan and the swap emerged that was not mentioned in the disclosures made at inception, and it caused ineffectiveness. What does Ind AS 107 require?

When other sources of hedge ineffectiveness emerge during a hedging relationship, the entity must disclose those sources by risk category and explain the resulting hedge ineffectiveness. Disclosing only the sources expected at inception, or only the amount, would not satisfy the requirement.

  1. ADisclose those sources by risk category and explain the resulting hedge ineffectivenessCorrect
  2. BNo disclosure, because only sources expected at inception need to be disclosed
  3. CDisclose only the amount of ineffectiveness, without explaining its sources
  4. DDiscontinue hedge accounting and make no further hedge disclosure

Explanation

Ind AS 107 (para 23E) states that if other sources of hedge ineffectiveness emerge in a hedging relationship, the entity discloses those sources by risk category and explains the resulting ineffectiveness. Para 23D covers only the expected sources, so limiting disclosure to inception ones is wrong.

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