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

Narmada Infra Ltd owes a bank Rs 2 crore. It issues unlisted shares to the bank in settlement of Rs 1.2 crore of this debt only. The fair value of the shares issued cannot be reliably measured. The fair value of the Rs 1.2 crore portion of the liability extinguished is Rs 1.05 crore. At what amount should the equity instruments be measured?

Equity is measured at Rs 1.05 crore. When the fair value of shares issued to a creditor cannot be reliably measured, Ind AS 109 Appendix D requires measurement to reflect the fair value of the financial liability extinguished, not its carrying amount.

  1. ARs 1.20 crore, the carrying amount of the part extinguished
  2. BRs 2.00 crore, the total carrying amount of the liability
  3. CRs 1.05 crore, reflecting the fair value of the financial liability extinguishedCorrect
  4. DNil, since the fair value cannot be measured reliably

Explanation

Where the fair value of the equity cannot be reliably measured, the equity instruments are measured to reflect the fair value of the financial liability extinguished. That is Rs 1.05 crore for the part settled. The carrying amount is not the stated basis, and the part-extinguishment is permitted under the Appendix.

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