(ii) On 1 April 20X7, Crypto, which has a functional currency of the dollar, entered into a contract to purchase a fixed quantity of electricity at 31 December 20X8 for 20 million euros. At that date, the spot rate was 1·25 dollars to the euro. The electricity will be used in Crypto’s production processes.

Crypto has separated out the foreign currency embedded derivative from the electricity contract and measured it at fair value through other comprehensive income (FVTOCI).

However, on 31 December 20X7, there was a contractual modification, such that the contract is now an executory contract denominated in dollars. At this date, Crypto calculated that the embedded derivative had a negative fair value of 2 million euros.

The directors of Crypto would like advice as to whether they should have separated out the foreign currency derivative and measured it at FVTOCI, and how to treat the modification in the contract. (5 marks)

Required:
Advise the directors of Crypto as to how the above issues should be accounted for with reference to relevant IFRS Standards.

Note: The split of the mark allocation is shown against each of the two issues above.