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

Tapti Energy Ltd regularly buys LNG cargoes under fixed-price contracts. Contract terms require physical delivery with no net settlement option, and LNG is not treated as readily convertible to cash. For similar contracts in the past, Tapti has taken delivery and resold the LNG within a few days to profit from short-term price movements. How should the new contract be viewed under Ind AS 109 scope?

The contract is within Ind AS 109. Tapti's practice of taking delivery of similar cargoes and selling them quickly for short-term profit means the contract is not for its expected purchase, sale or usage requirements, whatever the physical delivery terms say.

  1. AOutside scope, because the written terms require physical delivery
  2. BOutside scope, because LNG is not readily convertible to cash
  3. CWithin scope, because the entity has a practice of taking delivery and selling shortly after for short-term profitCorrect
  4. DWithin scope only if the contract is settled net in cash at maturity

Explanation

Para 2.6(c) covers contracts where, for similar contracts, the entity has a practice of taking delivery and selling within a short period to generate profit from short-term price fluctuations or dealer's margin. Such a contract is not entered into for expected purchase, sale or usage requirements, so it is within scope. Contract terms and convertibility alone do not decide the matter.

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