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

Vistara Agro Ltd regularly enters into contracts to buy wheat and, for similar contracts, takes delivery and sells the wheat within a short period after delivery to profit from short-term price fluctuations and dealer's margin. The latest wheat purchase contract has no net settlement clause. How should Vistara treat it under Ind AS 109?

The contract is within Ind AS 109 scope. A practice of taking delivery and quickly reselling for short-term price or dealer's margin profit means the contract is not for the entity's expected purchase, sale or usage requirements, even without a net settlement clause.

  1. AOutside scope, because the contract has no net settlement clause
  2. BOutside scope, because wheat is a physically delivered commodity
  3. CWithin scope, because the practice described in para 2.6(c) means it was not entered into for expected purchase, sale or usage requirementsCorrect
  4. DWithin scope only if the contract is settled net in cash at maturity

Explanation

Para 2.6(c) covers a practice, for similar contracts, of taking delivery and selling shortly afterwards to profit from short-term price fluctuations or dealer's margin. A contract to which (c) applies is not for expected purchase, sale or usage requirements and is within scope. The absence of a net settlement clause therefore does not matter.

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