Embedded derivatives under IFRS9 are not separately accounted for as was the requirement of IAS39 but they are treated at FVTPL together with the host contract. This is for financial assets
If there is a contract in which a company is purchasing parts and component at a fixed price initially but there is a condition if FX goes up the rates of the parts would go up too..would that mean FX rate is embedded derivative and should be bifurcated as its not closely related to host contract. Contract is in the same currency, but the seller purchase their parts from US market and then sell into their country
Hi sir!! A fellow CA student here . I know my doubt below is bit off the topic here but I would really like to know , of what significance is the condition of “no initial investment or comparatively little investment “ for determining whether a contract is a derivate or not . How can an investment feature in isolation have so much power in the financial reporting framework to change the contract from a derivate to a non derivate and vice versa? Does that point address some issue which I am unaware of? Would appreciate ur inputs on this . Very confused . Thanks
Hello Sammit. Ideally, if you pay a high amount for an instrument in beginning, the value of the instrument is presumably already recovered (paid by you). There is practically no aspect driving the value of that instrument, hence it can't met the definition of a derivative. I agree that this is very conceptual, but you can imagine as paying 70% value for a share today to purchase it in future under an option. The amount is significantly higher, and would rather be considered as discounted price and not be called as option premium
Thankyou sir for such a crisp video on embedded derivative. Really helpful while preparing for CA final
Such a logical explanation....loved the lecture 🔥🔥
How would you treat a convertoble loan which can be converted into 20% of issuers equity from the investors persepctive.
Thank you sir for such detailed explanation
Embedded derivatives under IFRS9 are not separately accounted for as was the requirement of IAS39 but they are treated at FVTPL together with the host contract. This is for financial assets
If the host contract is a financial asset then accounting for embedded derivative won't apply right?
If there is a contract in which a company is purchasing parts and component at a fixed price initially but there is a condition if FX goes up the rates of the parts would go up too..would that mean FX rate is embedded derivative and should be bifurcated as its not closely related to host contract. Contract is in the same currency, but the seller purchase their parts from US market and then sell into their country
Perfect
If I remember well, no separation under ifrs9 for financial assets but we separate for financial liabilities.....
Im sorry but % of revenue its a specific non finantial variable for the party so it isnt derivtive?
Hi sir!! A fellow CA student here . I know my doubt below is bit off the topic here but I would really like to know , of what significance is the condition of “no initial investment or comparatively little investment “ for determining whether a contract is a derivate or not . How can an investment feature in isolation have so much power in the financial reporting framework to change the contract from a derivate to a non derivate and vice versa? Does that point address some issue which I am unaware of? Would appreciate ur inputs on this . Very confused .
Thanks
Hello Sammit. Ideally, if you pay a high amount for an instrument in beginning, the value of the instrument is presumably already recovered (paid by you). There is practically no aspect driving the value of that instrument, hence it can't met the definition of a derivative. I agree that this is very conceptual, but you can imagine as paying 70% value for a share today to purchase it in future under an option. The amount is significantly higher, and would rather be considered as discounted price and not be called as option premium
@@AVCLearning Appreciate that!!! Now clear .
Sir, Can we say we will split embedded derivative from the host contract only when it is FL at Amortized cost?
Yes, This is done when following cost method also for a financial asset.
He is the guy
Awesome
Many thanks tejaswini
Nice
Many thanks sajid