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CA Final · Financial Reporting · Classification and Measurement of Financial Assets and Financial Liabilities

Anand Finserve Ltd made a commitment to lend ₹10 crore to a customer at a below-market interest rate. The commitment is not designated at FVTPL. It was initially recognised at ₹8 lakh, and cumulative income recognised under Ind AS 115 is ₹2 lakh. At the reporting date the Section 5.5 loss allowance on the commitment is ₹5 lakh. At what amount should the commitment liability be carried?

The commitment is carried at ₹6 lakh. Ind AS 109 requires the higher of the loss allowance of ₹5 lakh and the initial amount of ₹8 lakh less ₹2 lakh income recognised, which is ₹6 lakh. The higher of the two amounts is the carrying value.

  1. A₹5 lakh
  2. B₹6 lakhCorrect
  3. C₹8 lakh
  4. D₹3 lakh

Explanation

Paragraph 4.2.1(d) requires the higher of the loss allowance (₹5 lakh) and the amount initially recognised less cumulative income (8 - 2 = ₹6 lakh). The higher is ₹6 lakh. Choosing ₹5 lakh ignores the second test, while ₹8 lakh ignores the deduction of income recognised.

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