Skip to content

CA Final · Financial Reporting · Hedge Accounting

Vindhya Foods Ltd is drafting its risk management disclosures. It must describe how it uses hedging instruments, determines the economic relationship between hedged item and hedging instrument, and sets the hedge ratio. Which objective of hedge accounting disclosures do these descriptions primarily serve under Ind AS 107?

These descriptions serve the objective of explaining the entity's risk management strategy and how it is applied to manage risk. Ind AS 107 requires describing the hedging instruments, the economic relationship assessment, and the hedge ratio with ineffectiveness sources, which goes beyond equity effects alone.

  1. AProviding information about the entity's risk management strategy and how it is applied to manage riskCorrect
  2. BProviding information on the fair value of all derivatives held for trading
  3. CProviding information about the entity's credit rating
  4. DProviding information only about the effect on the statement of changes in equity

Explanation

Paragraph 21A(a) says hedge accounting disclosures provide information about the entity's risk management strategy and how it is applied. Paragraph 22B lists the content of that description: hedging instruments and how they are used, how the economic relationship is determined, and how the hedge ratio is set with sources of ineffectiveness. It is not limited to equity effects or trading derivatives.

Did you get it right without looking?

One question tells you little. A timed set on Hedge Accounting shows your real accuracy, how long you take and where you lose marks.

Practise Hedge AccountingFree diagnostic mock

More Hedge Accounting questions