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CMA Final · Corporate Financial Reporting · Accounting of Financial Instruments

Dhruv Infra Ltd settles part of a liability to a supplier. The part extinguished has a carrying amount of ₹30,00,000 and the entity issues 1,00,000 unlisted shares whose fair value cannot be reliably measured. The fair value of the part of the liability extinguished is ₹27,00,000. The remaining liability is ₹20,00,000. Which statement is correct?

Equity is measured at ₹27,00,000, the fair value of the liability part extinguished, because the shares' fair value is unreliable. The ₹3,00,000 difference from the carrying amount of ₹30,00,000 is a gain in profit or loss, and the remaining ₹20,00,000 liability stays.

  1. AEquity is measured at ₹30,00,000 and no gain or loss arises
  2. BEquity is measured at ₹27,00,000 and a gain of ₹3,00,000 is recognised in profit or lossCorrect
  3. CEquity is measured at ₹27,00,000 and the remaining ₹20,00,000 is also derecognised
  4. DEquity is measured at ₹10,00,000, the face value, and a gain of ₹20,00,000 is recognised

Explanation

If share fair value cannot be reliably measured, equity reflects the fair value of the liability extinguished, ₹27,00,000. The difference from carrying amount of the part extinguished is 30,00,000 - 27,00,000 = ₹3,00,000, a gain in profit or loss. The remaining liability stays because only part was extinguished. Carrying amount is not used for measuring equity.

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