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CA Final · Financial Reporting · Derivatives and Embedded Derivatives

Gangotri Infra Ltd acquired a subsidiary in a business combination under Ind AS 103. The subsidiary holds a contract with an embedded derivative. Its terms were modified after the acquisition date, which is one reason the acquirer wants to reassess whether the embedded derivative requires separation. Which statement best reflects Ind AS 109 on reassessment for contracts acquired in the business combination?

The reassessment requirement of paragraph B4.3.11 does not apply to embedded derivatives in contracts acquired in a business combination, a common control combination or a joint venture formation. Ind AS 103 deals with such acquired contracts instead.

  1. AThe reassessment requirement in B4.3.11 applies to the contract in the same way as to any other contract
  2. BThe reassessment requirement in B4.3.11 does not apply to embedded derivatives in contracts acquired in a business combination, which Ind AS 103 addressesCorrect
  3. CEmbedded derivatives in acquired contracts must always be separated regardless of terms
  4. DEmbedded derivatives in acquired contracts must always be measured at amortised cost

Explanation

Ind AS 109 states that the reassessment paragraph B4.3.11 does not apply to embedded derivatives in contracts acquired in a business combination, a common control combination or the formation of a joint venture. Ind AS 103 addresses the acquisition of contracts with embedded derivatives in a business combination. Option A wrongly applies the general reassessment rule.

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