Reassessment of embedded derivativesReassessment of embedded derivatives

Reassessment of embedded derivatives

B4.3.11 In accordance with paragraph 4.3.3, an entity shall assess whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when the entity first becomes a party to the contract. Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract, in which case reassessment is required. An entity determines whether a modification to cash flows is significant by considering the extent to which the expected future cash flows associated with the embedded derivative, the host contract or both have changed and whether the change is significant relative to the previously expected cash flows on the contract.

B4.3.12 Paragraph B4.3.11 does not apply to embedded derivatives in contracts acquired in:

(a) a business combination (as defined in AASB 3 Business Combinations);

(b) a combination of entities or businesses under common control as described in paragraphs B1–B4 of AASB 3; or

(c) the formation of a joint venture as defined in AASB 11 Joint Arrangements

or their possible reassessment at the date of acquisition.[5]