Skip to content

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

Kaveri Foods Ltd extinguishes part of a financial liability by issuing shares to its creditor. The fair value of the shares cannot be reliably measured. The liability extinguished has a fair value of Rs 30 lakh and a carrying amount of Rs 34 lakh. At what amount are the equity instruments initially measured?

The equity is measured at Rs 30 lakh. When the fair value of the shares cannot be reliably measured, they are measured to reflect the fair value of the financial liability extinguished, not its carrying amount of Rs 34 lakh.

  1. ARs 34 lakh, the carrying amount of the liability
  2. BRs 4 lakh, the difference
  3. CNil, since fair value is unavailable
  4. DRs 30 lakh, reflecting the fair value of the liability extinguishedCorrect

Explanation

If the fair value of the equity instruments cannot be reliably measured, they are measured to reflect the fair value of the financial liability extinguished. That is Rs 30 lakh. Rs 34 lakh is the carrying amount, which is not the specified basis; the Rs 4 lakh difference goes to profit or loss.

Did you get it right without looking?

One question tells you little. A timed set on Financial Instruments: Equity and Financial Liabilities shows your real accuracy, how long you take and where you lose marks.

Practise Financial Instruments: Equity and Financial LiabilitiesFree diagnostic mock

More Financial Instruments: Equity and Financial Liabilities questions