If a “Forward Contract” to acquire an Associate/ Joint Venture is a Financial Instrument?

Many a time business purchases are being made via forwards contracts/ options etc to secure an agreement at the inception which will then be executed (based on forward contract) at later point in time.

One of our readers has asked a query related to such forward contracts that are being used while such business purchases and wants to know the treatment of such financial Instruments under Ind-As 109. The query has been modified in a way to present it for illustration purposes only and readers will have an understanding about the concept and approach towards the similar cases –

Illustration –

Company A has entered into a forward contract to buy shares from a shareholder. The acquisition is for a stake of 35% which provides significant influence to Company A, now below are the questions that have been raised related to the query –

• Forwards contract where acquirer and selling shareholder agreed to buy business at future date will not be covered under Ind-As as per the scope definition of Ind-As 109? Then what would be approach to account for such acquisition,

Suggested approach –

First of all let’s refer the relevant extract of the standard of financial Instrument which defines about the business combination related 

scope exemption-

Ind-As 109 –Para- 2.1-(f)- any forward contract between an acquirer and a selling shareholder to buy or sell an acquiree that will result in a business combination within the scope of Ind AS103 Business Combinations ...............for further read please refer link -http://gyanifrs.com/2017/04/if-a-forward-contract-to-acquire-an-associate-joint-venture-is-a-financial-instruments/