CA Final · Financial Reporting · Financial Instruments: Scope and Definitions
Himalaya Power Ltd (parent) and its wholly owned subsidiary Himalaya Hydro Ltd are both controlled by Himalaya Holdings before and after a transaction. Hydro owes Power Rs 50 crore. To strengthen Hydro's balance sheet, the loan is settled by Hydro issuing shares to Power, and the substance includes a capital contribution to Hydro. Separately, Hydro's other loan from Ganga Finance Ltd (unrelated) is settled by issuing shares under a conversion clause already in the original loan terms. Which statement is correct regarding Appendix D of Ind AS 109 (Hydro's perspective)?
Appendix D applies to neither settlement. The Power loan is excluded because creditor and debtor are under common control before and after with a capital contribution in substance, and the Ganga Finance loan is excluded because the equity issue follows the original loan terms.
- AAppendix D applies to both settlements
- BAppendix D applies to neither settlementCorrect
- CAppendix D applies to the Power settlement only
- DAppendix D applies to the Ganga Finance settlement only
Explanation
Para 3(b) excludes cases where creditor and entity are controlled by the same party before and after, and the substance includes an equity contribution; this fits the Power settlement. Para 3(c) excludes extinguishment by issuing equity in accordance with the original terms of the liability; this fits the Ganga Finance conversion. Both are excluded, so Appendix D applies to neither.
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