Part 7Derivative contracts

Chapter 2Contracts to which this Part applies

Cases where companies treated as parties to relevant contracts

586Other contracts with embedded derivatives

1

This section applies if a company—

a

is a party to a contract which is neither a hybrid derivative nor a loan relationship, and

b

in accordance with generally accepted accounting practice, treats the rights and liabilities under the contract as divided between—

i

rights and liabilities under one or more derivatives (“embedded derivatives”), and

ii

the remaining rights and liabilities.

2

The company is treated for the purposes of this Part—

a

as a party to a relevant contract whose rights and liabilities consist only of those of the embedded derivative, or

b

if there is more than one embedded derivative, as a party to relevant contracts each of whose rights and liabilities consist only of those of one of the embedded derivatives.

3

Each relevant contract to which a company is treated as a party under subsection (2) is treated for the purposes of this Part as an option, a future or a contract for differences depending on what the character of a separate contract containing the rights and liabilities of the embedded derivative would be.

4

See also section 616 (disapplication of fair value accounting for certain embedded derivatives).