[Ibadha]

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[Ibadha]

“IAS 39 permits hedge accounting if it is expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk as designated and documented, and effectiveness can be reliably measured, and
assessed on an ongoing basis and determined to have been highly effective.

A hedge is highly effective if that offset falls within a 80–125% window. Hedge effectiveness has to be assessed both prospectively and retrospectively. All hedge ineffectiveness is recognised immediately in the statement of profit or loss (including ineffectiveness within the 80% to 125% window).”

The above information is from the article.
Hence, if the effectiveness falls out of the range oh 80%-125%, then the standard does not permit hedge accounting for that.

Furthermore, I would recommend to go through “over-hedging” and “under-hedging”, which might justify the treatment for your second question.

Hope this helped 🙂

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