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CA Final · Financial Reporting · Financial Instruments: Scope and Definitions

Ganga Commodities Ltd writes an option to a customer allowing the customer to buy 200 quintals of wheat at a fixed price. Wheat is readily convertible to cash, the option may be settled net in cash, and Ganga does not write it for its expected sale or usage requirements. How is the option treated under Ind AS 109?

The written option is within Ind AS 109 scope. It can be settled net in cash, with wheat being readily convertible to cash, and it is not entered into for the entity's expected purchase, sale or usage requirements, so the non-financial underlying does not take it outside the Standard.

  1. AIt is within scope, because a written option on a non-financial item that can be settled net is coveredCorrect
  2. BIt is outside scope because wheat is a non-financial item
  3. CIt is outside scope because it is a written rather than purchased option
  4. DIt is outside scope unless the customer is a related party

Explanation

A written option to buy or sell a non-financial item that can be settled net in cash, including because the item is readily convertible to cash, is within scope if not entered into for expected purchase, sale or usage requirements. Both conditions are satisfied. Being a written option or non-financial underlying does not exclude it.

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