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

Meridian Pharma Ltd regularly enters into contracts to buy gold. For similar contracts, it has a practice of taking delivery and selling the gold within a short period to earn profit from short-term price fluctuations. The contract terms do not mention net settlement. Which statement is correct under Ind AS 109?

The contract is within Ind AS 109. Under paragraph 2.6(c), a practice of taking delivery and selling shortly afterwards to profit from short-term price movements means the contract is not for expected purchase, sale or usage requirements, so it falls in scope even without an explicit net settlement term.

  1. AThe contract is within scope only if the terms explicitly permit net settlement
  2. BThe contract is outside scope because no net settlement term exists
  3. CThe contract is within scope, and is treated as not entered into for expected purchase, sale or usage requirementsCorrect
  4. DThe contract is within scope only if Meridian also settles similar contracts net in cash

Explanation

Para 2.6(c) covers a practice of taking delivery and selling shortly after for profit from short-term price fluctuations or dealer's margin. A contract to which (b) or (c) applies is not for the entity's expected purchase, sale or usage requirements and is in scope. Option 1 is wrong because explicit terms are not needed.

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