Designating the whole hybrid contract

Learning objectives

• Support the designation of an entire hybrid contract at fair value through profit or loss and identify the cases in which the option is not available.L3, L4

Normative references

• IFRS 9 §4.3.5If the host is not a financial asset, the entity may designate the entire hybrid contract at FVTPL; this option is not available if the embedded derivative does not significantly modify the cash flows of the contract or if it is clear that separation is prohibited (example: a prepayment option in a loan that permits prepayment for approximately its amortised cost).

Original summaries of the paragraphs (reference register), never a quotation of the standard.

1 question

• Thalès SA has issued a hybrid contract whose host is not a financial asset. It contains a prepayment option exercisable at an amount close to amortised cost. Thalès considers designating the whole hybrid contract at FVTPL. What can be said of this designation option?L4