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CA Final · Financial Reporting · Derivatives and Embedded Derivatives

Ganga Retail Ltd acquires Yamuna Foods Ltd in a business combination, and Yamuna has a contract with an embedded derivative. Ganga asks whether the reassessment guidance in paragraph B4.3.11 applies to such an embedded derivative. What does paragraph B4.3.12 state?

Paragraph B4.3.11 does not apply to embedded derivatives in contracts acquired in a business combination. The same applies to common-control combinations and joint venture formation, and Ind AS 103 addresses the acquisition of contracts with embedded derivatives in a business combination.

  1. AIt applies, and reassessment is required at the acquisition date
  2. BIt does not apply to embedded derivatives in contracts acquired in a business combinationCorrect
  3. CIt applies only if the contract was acquired under common control
  4. DIt applies only if the derivative is an option

Explanation

Paragraph B4.3.12 states B4.3.11 does not apply to embedded derivatives in contracts acquired in a business combination, a combination under common control, or the formation of a joint venture. Ind AS 103 addresses such acquisitions, so the first option is wrong.

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