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Under Ind AS 109's derecognition flowchart, a sale of a financial asset together with a put or call option that is DEEPLY OUT OF THE MONEY (highly unlikely to ever go into the money) is treated as:
APartial transfer — derecognise the proportion equal to delta of the option
BTransfer of substantially all the risks and rewards of ownership — the asset is derecognised in full
CContinuing involvement — recognise pro-rata to the option's intrinsic value
DRetention of substantially all risks and rewards — no derecognition
Answer & Solution
Correct answer: B. Transfer of substantially all the risks and rewards of ownership — the asset is derecognised in full
Para B3.2.5 — a deeply out-of-the-money option is so unlikely to be exercised that economically the transferor has transferred substantially ALL risks and rewards. Full derecognition. The opposite (deeply in-the-money option) would mean substantially ALL risks/rewards are retained — no derecognition.
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