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

Meghna Pharma Ltd issues equity shares to settle a payable to a supplier, but the fair value of these unlisted shares cannot be reliably measured. The payable is carried at Rs 30 lakh and its fair value is Rs 28 lakh. At what amount should the equity instruments be initially measured?

The equity instruments are measured at Rs 28 lakh. Where their own fair value cannot be reliably measured, Ind AS 109 requires measurement to reflect the fair value of the financial liability extinguished, not its carrying amount, so the Rs 2 lakh difference is recognised as a gain.

  1. ARs 28 lakh, reflecting the fair value of the liability extinguishedCorrect
  2. BRs 30 lakh, the carrying amount of the liability
  3. CTheir face value
  4. DNil, since fair value is unavailable

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, Rs 28 lakh. Carrying amount is not the basis, so Rs 30 lakh is wrong; the difference of Rs 2 lakh goes to profit or loss.

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