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

Godavari Retail Ltd's lender, Mahi Bank, agrees to renegotiate a term loan of Rs 50 lakh. Under the new terms Godavari will issue equity shares to Mahi Bank to extinguish part of the loan. Mahi Bank holds no shares in Godavari and is not under common control with it. The original loan terms did not provide for conversion. Is Appendix D of Ind AS 109 (Extinguishing Financial Liabilities with Equity Instruments) applicable to Godavari?

Appendix D applies. The terms are renegotiated and equity is issued to a creditor to extinguish part of the liability. The exclusions for shareholder creditors, common control with distribution or contribution substance, and settlement under original terms do not apply, and the Appendix addresses the debtor, not the creditor.

  1. ANo, because Appendix D applies only to the creditor's accounting
  2. BNo, because extinguishing by issuing shares is always in accordance with the original terms
  3. CNo, because Appendix D is relevant only when the creditor is a shareholder
  4. DYes, because the liability's terms are renegotiated and equity instruments are issued to a creditor to extinguish part of the liability, and none of the exclusions appliesCorrect

Explanation

Appendix D covers renegotiation where an entity issues equity to a creditor to extinguish all or part of a financial liability, and it does not address the creditor's accounting. The exclusions are a creditor acting as a shareholder, common control with equity distribution or contribution substance, and settlement under the original terms. None applies here, so option D is correct.

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