Skip to content

CA Final · Financial Reporting · Derivatives and Embedded Derivatives

Kaveri Industries issues a debt-type hybrid instrument with two embedded features: an equity conversion option, which is classified as equity under Ind AS 32, and a commodity-linked interest feature that is a liability derivative. Which treatment is consistent with Ind AS 109 on multiple embedded derivatives?

The equity-classified embedded derivative is accounted for separately from the asset or liability derivatives. Although multiple embedded derivatives are generally treated as a single compound derivative, Ind AS 109 expressly carves out those classified as equity, so the conversion option is kept apart.

  1. ATreat all embedded derivatives as one compound derivative, whatever their classification
  2. BAccount for the equity-classified derivative separately from those classified as assets or liabilitiesCorrect
  3. CNever separate any derivative if more than one is present
  4. DAccount for the equity-classified derivative together with the liability derivative as a single compound derivative

Explanation

Multiple embedded derivatives are generally treated as a single compound embedded derivative. However, embedded derivatives classified as equity are accounted for separately from those classified as assets or liabilities. So the equity conversion option is kept apart from the commodity-linked feature.

Did you get it right without looking?

One question tells you little. A timed set on Derivatives and Embedded Derivatives shows your real accuracy, how long you take and where you lose marks.

Practise Derivatives and Embedded DerivativesFree diagnostic mock

More Derivatives and Embedded Derivatives questions