A 'derivative instrument' can include convertible debt, options, warrants etc., where their value depends on movements in an underlying asset (for example, share price). When computing fully diluted EPS, these instruments are included in the denominator (in other words, they are treated like any other conversion or exercisable option), unless they meet certain criteria. This is because under IFRS 2 they would otherwise be classified as equity instruments and subject to some complex Accounting Procedures if their terms did not permit them to be converted or exercised.