10-01-2004, 09:33 PM
Consider the case of a Polish company which produces engines and spare parts for ships.The reporting currency of the entity is polish zloty but lots of contracts between two polish or polish and other European companies are denominated in US dollars. The problem is whether the embedded financial instrument (under IAS 39) should be recognized in this case or not. Can we treat US dollar as "a (follow IAS 39) currency in which the price of the related good or service that is acquired or delivered is routinely denominated in international commerce (for example, the U.S. dollar for crude oil transactions)"? If we could, there would be no embedded derivative but if we couldn't, the derivative would have to be recognized.
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Idrees
