II - Complex Contracts: Procedure for classifying complex contracts

1. Contracts not classifiable as own-use contracts

The procedure for determining whether a contract is classifiable as an own-use contract is given below: 

(*)

• (a) Contract terms permit either party to pay the net amount
• (b) For similar contracts, the entity has a practice of paying the net amount (cash, inverse contract settlement, contrat sale …)
• (c) The entity has a practice of taking delivey of the underlying and selling it within a short period after delivery for the purpose of generating a profit form short-term fluctuations in price or dealer's margin
• (d) The non-financial item that is the subject of the contract is readily convertible to cash

Example

Solvay signs a contract with MINE D’OR that enables Solvay to receive 1 kg of gold every month for a price of 100 MEUR per month during 2 years. Solvay intends to sell it at the market price in order to generate profit.

This contract is a non own-use contract as:

• Solvay sales the gold for the purpose of generating a profit from short-term fluctuations in price
• Gold is readily convertible to cash

This agreement will be considered as a derivative and booked at fair value through profit and loss according to IFRS 9 - Financial Instruments.