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CA Final · Financial Reporting · Financial Instruments: Equity and Financial Liabilities

Dhruv Engineering Ltd. owes Rs 60 lakh to a supplier. It issues unquoted equity shares to the supplier to settle the full amount. The fair value of these shares cannot be reliably measured. The fair value of the liability extinguished is Rs 57 lakh. Under Appendix D of Ind AS 109, at what amount are the equity instruments initially measured?

When the equity's fair value cannot be reliably measured, the shares are measured to reflect the fair value of the financial liability extinguished, which is Rs 57 lakh here. The carrying amount of Rs 60 lakh is not the prescribed fallback basis.

  1. ARs 60 lakh, the carrying amount of the liability
  2. BRs 57 lakh, reflecting the fair value of the liability extinguishedCorrect
  3. CRs 0, as the fair value is unreliable
  4. DFace value of the shares issued

Explanation

If the fair value of the equity cannot be reliably measured, the equity is measured to reflect the fair value of the liability extinguished, here Rs 57 lakh. Using carrying amount of Rs 60 lakh (option A) ignores that the standard refers to fair value of the liability.

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