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CMA Final · Corporate Financial Reporting · Accounting of Financial Instruments

Kaveri Power Ltd settles a trade payable of Rs 80 lakh (carrying amount) by issuing 5 lakh equity shares to the creditor. The shares' fair value on the settlement date is Rs 14 per share, reliably measurable, although the shares were issued at a face value of Rs 10. What amount of gain or loss is recognised in profit or loss?

The gain is Rs 10 lakh. The shares are measured at fair value, 5 lakh x Rs 14 = Rs 70 lakh, and the difference from the Rs 80 lakh carrying amount goes to profit or loss. Face value is irrelevant for measuring the consideration.

  1. ALoss of Rs 30 lakh
  2. BGain of Rs 30 lakhCorrect
  3. CGain of Rs 10 lakh
  4. DGain of Rs 80 lakh

Explanation

Consideration paid = 5,00,000 x Rs 14 = Rs 70 lakh. Carrying amount Rs 80 lakh less Rs 70 lakh gives a gain of Rs 10 lakh. Using face value (Rs 50 lakh) would give Rs 30 lakh, which is wrong because fair value is the measure.

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