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CA Final Hedge Accounting — practice questions

Explore 40 free Hedge Accounting questions in CA Final Financialreporting. Open each question or exercise to read its content, reference answers and available explanation.

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Hedge Accounting questions and exercises with answers

Showing questions 1–30 of 40.

What is the main aim of hedge accounting?Read the answer and worked solution →How many types of hedge are recognised in the basic classification of hedge accounting?Read the answer and worked solution →In a cash flow hedge, the effective part goes to which equity item?Read the answer and worked solution →How does a fair value hedge offset a derivative's P&L?Read the answer and worked solution →Why is a hedge relationship documented?Read the answer and worked solution →Under IAS 39, how are unhedged derivative fair value changes treated?Read the answer and worked solution →Under IAS 39, hedge accounting is what kind of treatment?Read the answer and worked solution →Which entity is most naturally exposed to the price of jet fuel?Read the answer and worked solution →A gold mining company faces which main market risk?Read the answer and worked solution →Importers and exporters are chiefly exposed to which type of risk?Read the answer and worked solution →Which forex hedge is designated for the net investment in a foreign operation?Read the answer and worked solution →A forecasted intercompany transaction can be hedged as what?Read the answer and worked solution →An unrecorded firm commitment may be hedged how?Read the answer and worked solution →Which standard replaced IAS 39 for most entities from 1 January 2018?Read the answer and worked solution →How may an entity keep using IAS 39 hedge accounting?Read the answer and worked solution →What was the intent of the IFRS 9 hedge changes?Read the answer and worked solution →IFRS 9 permits more use of hedge accounting for which items?Read the answer and worked solution →What did IFRS 9 do to the hedge effectiveness test compared with IAS 39?Read the answer and worked solution →IFRS 9 hedge disclosures must refer to which formal item?Read the answer and worked solution →Which standard is titled Financial Instruments: Disclosures?Read the answer and worked solution →IFRS 7 became applicable from which date?Read the answer and worked solution →Which three risks must IFRS 7 disclosures cover?Read the answer and worked solution →IFRS 7 asks for carrying amounts by which grouping?Read the answer and worked solution →How many levels does the fair value hierarchy used for financial instrument disclosures have?Read the answer and worked solution →Which inputs define Level 1 in the fair value hierarchy?Read the answer and worked solution →Inputs that are not based on observable market data belong to which level?Read the answer and worked solution →Observable data from less active markets or for similar instruments is which level?Read the answer and worked solution →Why is auditing Level 3 fair values especially challenging?Read the answer and worked solution →When may fair value disclosure be omitted for a financial instrument?Read the answer and worked solution →At initial recognition, IFRS 9 allowances normally cover which horizon?Read the answer and worked solution →

Worked practice questions

What is the main aim of hedge accounting?

  1. To state every asset at its historical cost
  2. To remove all derivatives from the balance sheet
  3. To raise the tax charged on derivative gains
  4. To offset the derivative's mark-to-market movement
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Correct answer: D. To offset the derivative's mark-to-market movement

Hedge accounting matches the gain or loss on the hedging derivative with the loss or gain on the hedged exposure so that profit or loss is less volatile.

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How many types of hedge are recognised in the basic classification of hedge accounting?

  1. One
  2. Five
  3. Three
  4. Two
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Correct answer: D. Two

The basic split is between a fair value hedge and a cash flow hedge.

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In a cash flow hedge, the effective part goes to which equity item?

  1. Share capital account
  2. Securities premium account
  3. Cash flow hedge reserve
  4. Revaluation surplus
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Correct answer: C. Cash flow hedge reserve

The variability in the position's cash flows is parked in a separate equity component called the cash flow hedge reserve.

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More Financialreporting topics

Ind AS 116 LeasesInd AS 36 Impairment of Assets and Ind AS 38 Intangible AssetsInd AS 24 Related Party Disclosures and Ind AS 108 Operating SegmentsInd AS 1 Presentation of Financial StatementsInd AS 12 Income TaxesInd AS 113 Fair Value MeasurementInd AS 109 Financial InstrumentsInd AS 23 Borrowing Costs and Ind AS 40 Investment Property