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With regards to March/June 2019 Exam paper,
Question 3(a)(ii)
The question states that the directors of Crypto would like advice as to weather they should have separated out the foreign currency derivative from the purchase of electricity.
However, in the answer key, there was no conclusion on whether these should actually be separated or not. It only showed the criteria required for separate recognition.
I’m confused. So, are we just required to state the conditions for separate recognition because there is not much information provided to assess whether these conditions have been met ?
In the first part of the scenario the derivative which is to be settled in cash must be separated out and accounted for at fair value with gains and losses going to profit and loss.
In the second part of the scenario the derivative is to be settled by the delivery of electricity. So it is nothing to do with financial instruments. This is just a contract to buy or sell electricity in the same way as you might have a contract to buy or sell some sausages. So there would be nothing to separate out!
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