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In certain cases where in a company's accounts a creditor loan relationship, which carries the right to acquire shares, is bifurcated into a host debt contract and an embedded derivative, which is treated as an option for the purposes of the derivative contracts legislation, any profits or losses arising in respect of the embedded option may be treated as giving rise to a chargeable gain or an allowable loss on the basis on which such profits or losses are recognised in the company's accounts in accordance with generally accepted accounting practice (see D1.843) provided that the underlying subject matter of the option consists wholly of shares¹. In order for profits and losses arising on the embedded derivative to be treated as chargeable gains or allowable losses the following conditions have to be satisfied²:

1. Ìý

   (a)ÌýÌýÌýÌý the company must not be a party to the underlying creditor loan relationship for the purposes of a trade carried on by it; this restriction does not apply where the company is