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An option is purchased that expires OUT OF THE MONEY at maturity (so it is never exercised, and no exchange of consideration occurs at the end). Does the option meet the "settled at a future date" criterion of a derivative under Ind AS 109?
AYes, but only if there was an upfront premium paid by the option buyer
BYes — expiry at maturity is itself a form of settlement, even when no exchange of consideration occurs
CNo — only physically settled options qualify; cash settlement does not
DNo — unexercised expiry means no settlement event occurred
Answer & Solution
Correct answer: B. Yes — expiry at maturity is itself a form of settlement, even when no exchange of consideration occurs
Ind AS 109's definition of derivative requires future settlement; the standard explicitly clarifies that EXPIRY AT MATURITY is a form of settlement, regardless of whether the option ended in or out of the money. Upfront premium payment and physical vs cash settlement are not part of the settlement test.
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