Guiding principle in guidance note on accounting for derivatives?

What is the main guiding principle in the guidance note on accounting for derivatives?

The main accounting principle enshrined in this guidance note is that all derivative contracts should be accounted for in the books of accounts and the same should be measured at fair value irrespective of whether it is part of hedging relationship or not. If a derivative contract is not part of any hedging relationship, then such a derivative is entered into for speculative purposes and the fair value changes of such derivative should be recognised in the profit and loss account on a continuous basis, not merely on liquidation of the same as it is currently being done. However, where the derivative contract is used for hedging purposes and the entity adheres to proper hedge accounting, the fair value changes of the hedging instrument should not be recognised in the profit and loss account but should be dealt with depending upon whether it is a fair value hedge or a cash flow hedge or a net investment in foreign operation hedge. This guidance note enumerates the principles an entity should follow while treating the fair value changes of the derivative that is part of a hedging relationship.

Current standards for financial instruments as per AS?

Current standards for financial instruments as per AS? What are the current accounting standards for financial instruments as per AS? Currently there are no accounting standards that specifically address financial instruments except for certain forward foreign exchange contracts covered by AS 11. The Accounting Standards relating to financial instruments, viz, AS 30, …
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Need for the guidance note on accounting for derivatives

Need for the guidance note on accounting for derivatives What is the need for the guidance note on accounting for derivatives? Currently, none of the notified accounting standards prescribe the proper accounting treatment for derivative contracts. Foreign exchange forward contracts, which are speculative in nature, ie, which do not hedge the …
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Entities that are required to follow the guidance note

Entities that are required to follow the guidance note What are the entities that are required to follow the guidance note? Banking, non-banking finance companies (NBFCs), housing finance companies and insurance entities follow derivative accounting promulgated by the respective regulatory authorities, viz, Reserve Bank of India (RBI), National Housing Bank (NHB), Insurance …
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Transactions within the scope of this guidance note

Transactions within the scope of this guidance note What type of transactions are within the scope of this guidance note and which are outside the scope? All transactions covered by AS 11, accounting for embedded derivative contracts and accounting for non-derivative financial assets/liabilities designated as hedging instruments are outside the scope of …
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Key accounting principles in the guidance note?

Key accounting principles in the guidance note? What are the key accounting principles mentioned in this guidance note? All derivatives should be accounted for at the inception and measured at fair value too at the inception as well as at every reporting period.If hedge accounting is not applied, then the derivatives should …
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Fair value hedge on discontinuation of hedge accounting

Fair value hedge on discontinuation of hedge accounting What happens to a fair value hedge on discontinuation of hedge accounting? Fair value hedge accounting as per the approach mentioned in the guidance note is significantly different from the fair value hedge accounting as per Ind AS 109. The fundamental difference arises on …
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