IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

238

Wiley IFRS: Practical Implementation Guide and Workbook

Required

Discuss whether this contract falls within the scope of lAS 39.

Solution

This contract potentially is within the scope of lAS 39 because it is a contract to buy or sell a nonfinan–

cial item (copper) and the contract is subject to potential net settlement. Under lAS 39, a contract is con–

sidered to be subject to potential net settlement if the nonfinancial item that will be delivered is readily

convertible to cash. This condition is met in this case because the nonfinancial item is traded on an ac–

tive market.

Therefore, the contract is within the scope of lAS 39 unless it is a "normal purchase or sale." There is

not sufficient information in the question to determine whether it is a "normal purchase or sale." The

contract would be considered to be a normal purchase or sale if the entity intends to settle the contract by

taking delivery of the nonfinancial item and has no history of

• Settling net;

• Entering into offsetting contracts; or

• Selling shortly after delivery in order to generate a profit from short-term fluctuations in price or

dealer' s margin.

2.3 Scope Exceptions

2.3.1

lAS

does not apply to an entity's own issued equit y instruments that are classified in the

equity section of the entity ' s balance sheet (e.g., ordinary shares, preference shares, warrants, and

share option s classified in equity) . Investments in equity instruments issued by other entities, how–

ever, are financial assets and within the scope of lAS

unless some other scope exception applies.

2.3.2

lAS

also provides scope exceptions for some other items that meet the definition of a

financial instrument, because they are accounted for under other International Accounting Stan–

dard s (lAS) or International Financial Reportin g Standards (IFRS). Such scope exceptions are

listed in the table.

Scope exceDtion

Lease receivables and lease payables

Employee benefit plans

Interests in subsidiaries

Interests in associates

Interests in jo int ventures

Share-based payment transactions

Contingent consideration in business combina–

tions

Insurance contracts

Applicable standard

lAS 17,

Leases

lAS 19,

Employee Benefi ts

lAS 27,

Consolidated and Separate Financial

Statements

lAS 28,

Investments in Associates

lAS 31,

Interests in Joint Ventures

IFRS 2,

Share -Based Payment

IFRS 3,

Business Combinations

IFRS 4,

Insurance Contracts

3. CLASSIFICAnON OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES INTO