Treatment when hedge accounting not qualified
An entity follows hedge accounting as per previous GAAP. However, the same does not qualify for hedge accounting as per Ind AS 109. What should the entity do?
If a hedging relationship does not qualify for hedge accounting as per Ind AS 109, such hedge accounting should be discontinued on first-time adoption of Ind AS. This happens when a previously designated hedge fails to satisfy the conditions for hedge accounting as per Ind AS 109, irrespective of whatever may be the status as per the previous GAAP. It is also prohibited to retrospectively designate the hedging relationship where the transactions are entered into before the date of transition to Ind AS. In a fair value hedge, the carrying value as per previous GAAP will be taken as the amortised cost and the entity should start amortising the difference between the carrying value and the amortised cost over a period of the remaining life of the financial instrument.
