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CA Final · Financial Reporting · Derivatives and Embedded Derivatives

Mahesh Pharma Ltd has a hybrid contract with a host outside Ind AS 109 scope and an embedded derivative. The finance head says separation is complex and could give less reliable measures. Which statement is correct under Ind AS 109?

The entity may designate the entire hybrid contract as at fair value through profit or loss. Ind AS 109 permits this because separating an embedded derivative can be more complex or yield less reliable measures than fair valuing the whole instrument.

  1. AThe entity must always separate the embedded derivative and cannot use any alternative
  2. BThe entity may designate the entire hybrid contract as at fair value through profit or lossCorrect
  3. CThe entity may measure the hybrid at amortised cost to avoid complexity
  4. DThe entity may ignore the embedded derivative if its value is uncertain

Explanation

B4.3.9 notes that separation can be complex or less reliable than measuring the whole instrument at fair value, so the Standard permits designating the entire hybrid contract as at fair value through profit or loss. Amortised cost is not offered as a simplification, and uncertainty of value does not allow ignoring the derivative.

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