(Accounting Standards for Other Compound Instruments)
It is necessary to separate embedded derivatives if all of the following conditions are met:
► it is possible that the underlying asset or liability could be affected by the risks arising from the embedded derivative;
► a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and
► the impact of changes in fair value are not reflected in profit and loss.
However, where embedded derivatives are separated for management purposes and certain conditions are met, they may be separated.