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CA Final · Financial Reporting · Financial Instruments: Scope and Definitions

Godavari Foods Ltd has a bank loan of ₹50 lakh from Canara Bank. On renegotiation, the bank agrees to accept equity shares of Godavari Foods in extinguishment of the loan. The conversion was not part of the original loan terms, and the bank holds no shares of Godavari Foods. Godavari Foods and the bank are not under common control. Which is correct about Appendix D to Ind AS 109?

Appendix D applies. The loan terms were renegotiated and equity is issued to the creditor to extinguish the liability. The bank is not acting as a shareholder, there is no common control, and conversion was not in the original terms, so none of the exclusions is met.

  1. AAppendix D applies because the liability is extinguished by issuing equity to a creditor after renegotiation, and none of the exclusions appliesCorrect
  2. BAppendix D does not apply because the creditor is a bank
  3. CAppendix D does not apply because extinguishment by equity is in accordance with the original terms
  4. DAppendix D applies only if the bank is also a shareholder

Explanation

Appendix D covers renegotiated liabilities extinguished by issuing equity to the creditor. It is excluded only if the creditor acts as a shareholder, if creditor and entity are under common control with an equity distribution or contribution in substance, or if conversion follows the original terms. None of these exists here, so it applies.

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