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Silver Ltd. signs a contract on 10 March to purchase 100 ounces of gold; the price is payable on 10 April based on then-prevailing gold market price and settled by issuing such NUMBER of equity shares (at ₹10/share) as needed. "Own-use" exemption does NOT apply. Under Ind AS 109, this contract is:
AA trade payable — for the gold purchase, with no derivative element
BAn equity instrument — it is settled in the company's own shares
CA compound instrument — split between commodity host and equity-settlement derivative
DA derivative financial liability — settled in own equity at a variable number of shares (fails fixed-for-fixed), measured at FVTPL
Answer & Solution
Correct answer: D. A derivative financial liability — settled in own equity at a variable number of shares (fails fixed-for-fixed), measured at FVTPL
Value changes with gold price (underlying), no initial net investment, settled at a future date — meets the derivative definition. Settlement is in own equity at a VARIABLE number of shares (varying with gold price), failing the fixed-for-fixed test of Ind AS 32.16(B). Therefore a DERIVATIVE FINANCIAL LIABILITY, carried at FVTPL under Ind AS 109.4.2.1.
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