CA Final · Financial Reporting · Financial Instruments: Scope and Definitions
Kaveri Textiles Ltd holds 100% of the equity shares of its subsidiary Kaveri Exports Pvt Ltd, and the investment is accounted for in its separate financial statements at cost under Ind AS 27. Kaveri Textiles also holds a forward contract to buy additional shares of the subsidiary from a third party. The forward does not meet the definition of an equity instrument of Kaveri Textiles. Which statement is correct as regards the scope of Ind AS 109?
The investment in the subsidiary accounted for under Ind AS 27 is excluded from Ind AS 109, but the forward contract on the subsidiary interest is within scope, because derivatives on subsidiary interests are covered unless they meet the Ind AS 32 definition of the entity's own equity instrument.
- AThe investment in the subsidiary accounted for under Ind AS 27 is outside Ind AS 109, but the forward contract on the subsidiary interest is within its scopeCorrect
- BBoth the investment and the forward contract are outside Ind AS 109 because they relate to a subsidiary
- CBoth the investment and the forward contract are within Ind AS 109 because they are financial instruments
- DThe investment is within Ind AS 109 but the forward contract is outside it
Explanation
Ind AS 109 excludes interests in subsidiaries accounted for under Ind AS 110, Ind AS 27 or Ind AS 28. However, entities must apply the Standard to derivatives on such interests unless the derivative meets the definition of an equity instrument of the entity in Ind AS 32. The forward is not such an equity instrument, so it is in scope. Excluding both wrongly ignores this carve-back.
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