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CA Final · Financial Reporting · Derivatives and Embedded Derivatives

Ananya Steels Ltd acquires Bharat Alloys Ltd in a business combination. Bharat Alloys is party to supply contracts that contain embedded derivatives. Ananya's accountant proposes applying the reassessment guidance for embedded derivatives in B4.3.11 to those acquired contracts. Which view is correct under Ind AS 109 Appendix B?

The reassessment guidance in B4.3.11 does not apply to embedded derivatives in contracts acquired in a business combination. The same carve-out covers common control combinations and the formation of a joint venture, so the accountant's proposal is incorrect.

  1. AB4.3.11 applies, as the acquirer reassesses every contract after acquisition
  2. BB4.3.11 does not apply to embedded derivatives in contracts acquired in a business combinationCorrect
  3. CB4.3.11 applies only if the contracts were acquired under common control
  4. DB4.3.11 applies only to the host and not to the embedded derivative

Explanation

B4.3.12 states that B4.3.11 does not apply to embedded derivatives in contracts acquired in a business combination under Ind AS 103, in a common control combination, or in the formation of a joint venture. Option C is wrong because common control is also excluded, not a condition for applicability.

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