Contract to deal in non-financial item
Is a contract to buy or sell a non-financial item, a financial instrument?
A contract to deal with a non-financial item is not a financial instrument. However, there are certain contracts to buy or sell a non-financial item that may be required to be accounted for as a derivative as per the financial accounting standards, eg, where the contacts to buy or sell a non-financial item that can be settled net in cash or another financial instruments or by exchanging financial instruments, as if the contracts were financial instruments. In other words, even though these contracts are not financial instruments, they will be regarded as financial instruments for the purpose of accounting and disclosure as per the standard. Contracts that were entered into for the purpose of receipt or delivery of a non-financial item in accordance with the entity’s expected purchase, sale or usage requirements are outside the scope of the financial instruments standards. However, contacts that an entity designates as measured at fair value through profit or loss will still be within the scope of the financial instruments standards. Designating such a contract as measured at fair value through profit or loss is irrevocable. Such designation is available only at the inception of the contract and only if such a designation eliminates or significantly reduces a recognition inconsistency known as accounting mismatch.