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

Kaveri Textiles Ltd holds 30% of the equity shares of Sutlej Dyes Ltd and accounts for the investment as an associate under Ind AS 28. It has also bought a call option on a further 5% of Sutlej Dyes' shares from another shareholder. The option does not meet the definition of an equity instrument of Kaveri Textiles. Which statement correctly reflects the scope of Ind AS 109 for these items?

The 30% associate investment is excluded from Ind AS 109 because Ind AS 28 governs it. The call option on further shares is a derivative on an interest in an associate that is not the entity's own equity instrument, so Ind AS 109 applies to it.

  1. ABoth the 30% investment and the call option are outside Ind AS 109, because both relate to an associate
  2. BBoth the 30% investment and the call option are within Ind AS 109, because both are financial assets
  3. CThe 30% investment is within Ind AS 109, while the call option is accounted for under Ind AS 28
  4. DThe 30% investment is outside Ind AS 109 because it is accounted for under Ind AS 28, but the call option is a derivative on an interest in an associate and is within Ind AS 109Correct

Explanation

Para 2.1(a) excludes interests in associates accounted for under Ind AS 28. The same paragraph says entities shall apply Ind AS 109 to derivatives on an interest in a subsidiary, associate or joint venture unless the derivative is an equity instrument of the entity. The option is not Kaveri's own equity, so it is in scope. Option A ignores this carve-back.

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