Embedded derivatives are simply derivatives embedded in a host contract. Therefore, the measurement rules for embedded derivatives which are required to be separated are the same as those applicable to stand alone derivatives in IAS 39. If the embedded derivative is separated from the host contract then the embedded derivative shall be valued at fair value and the changes in the fair value recognised in profit or loss. In terms of IAS 39, if an entity is unable to separately measure the fair value of an embedded derivative requiring separation from the host contract, the whole contract shall be measured at fair value with the changes in fair.
