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Where a company prepares its accounts in accordance with IFRS 9 it is not possible for it to bifurcate a creditor loan relationship that contains an embedded derivative. Where the embedded derivative is not closely related to the host contract the creditor loan relationship is generally required to be accounted for at fair value through profit or loss¹. It is still possible, however, for a debtor loan relationship to be bifurcated into a host contract and an embedded derivative².

Where a company prepares its accounts in accordance with FRS 102 and it adopts the recognition and measurement provisions of FRS 102 sections 11 and 12, it is not permitted to bifurcate a creditor or a debtor loan relationship which contains an embedded derivative. Where the embedded derivative is not closely related to the host contract the company is normally required to carry the loan relationship at fair value in its accounts.

In certain cases where a company prepared its accounts in accordance with IAS 39 or FRS 101 (for accounting