Qualifying instruments
Derivatives embedded in financial assets
BC6.117 IAS 39 required the separation of derivatives embedded in hybrid financial assets and liabilities that are not closely related to the host contract (bifurcation). In accordance with IAS 39, the separated derivative was eligible for designation as a hedging instrument. In accordance with IFRS 9, hybrid financial assets are measured in their entirety (ie including any embedded derivative) at either amortised cost or fair value through profit or loss. No separation of any embedded derivative is permitted.
BC6.118 In the light of the decision that it made on IFRS 9, the IASB considered whether derivatives embedded in financial assets should be eligible for designation as hedging instruments. The IASB considered two alternatives:
(a) an entity could choose to separate embedded derivatives solely for the purpose of designating the derivative component as a hedging instrument; or
(b) an entity could designate a risk compo
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