Commentary

D1.723 Loan relationships—Embedded derivatives and fair value basis

Corporate tax
Corporate tax | Commentary

D1.723 Loan relationships—Embedded derivatives and fair value basis

Corporate tax | Commentary

D1.723 Loan relationships—Embedded derivatives and fair value basis

Where a company prepares its accounts in accordance with IFRS 9 it is not possible for it to bifurcate a creditor loan relationship that contains an embedded derivative. Where the embedded derivative is not closely related to the host contract the creditor loan relationship is generally required to be accounted for at fair value through profit or loss1. It is still possible, however, for a debtor loan relationship to be bifurcated into a host contract and an embedded derivative2.

Where a company prepares its accounts in accordance with FRS 102 and it adopts the recognition and measurement provisions of FRS 102 sections 11 and 12, it is not permitted to bifurcate a creditor or a debtor loan relationship which contains an embedded derivative. Where the embedded derivative is not closely related to the host contract the company is normally required to carry the loan relationship at fair value in its accounts.

In certain cases where a company prepared its accounts in accordance with IAS 39 or FRS 101 (for accounting periods beginning before 1 January 2018) or FRS 26 (for accounting periods beginning before 1 January 2015) or FRS 102 (where a company has elected to apply the recognition and measurement provisions of IFRS 9 or IAS 39 to its financial instruments in place of the sections 11 and 12 of FRS 102), in certain cases it was required to separate, or bifurcate, a loan relationship into a host contract and an embedded derivative

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