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

Rohini Energy Ltd writes an option allowing a customer to buy 1,000 units of a commodity from Rohini at a fixed price. The option can be settled net in cash at the customer's choice under its terms. Rohini does not enter into it for delivery under its expected sale requirements. Which statement is correct?

The written option is within Ind AS 109. A written option on a non-financial item that can be settled net in cash, and which is not entered into for the entity's expected purchase, sale or usage requirements, is specifically brought into scope.

  1. AThe written option is within the scope of Ind AS 109Correct
  2. BThe written option is outside the scope because it is a non-financial item
  3. CThe written option is outside the scope because only purchased options are covered
  4. DThe written option is within scope only if the commodity is readily convertible to cash and net settlement is not permitted

Explanation

Para 2.7 brings a written option to buy or sell a non-financial item into scope if it can be settled net in cash under para 2.6(a) or 2.6(d) and is not entered into for expected purchase, sale or usage requirements. Here the terms permit net cash settlement and there is no own-use purpose. Hence it is in scope.

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