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

Ranganath Textiles Ltd renegotiates a loan from a bank. The loan has a carrying amount of ₹50 lakh. The bank agrees to accept equity shares of Ranganath in full settlement. Which of the following statements correctly describes how Ranganath should initially measure the equity shares issued under Ind AS 109 (Appendix D), assuming their fair value can be reliably measured?

Ranganath should measure the equity shares at their fair value when initially recognised, because Appendix D to Ind AS 109 says so unless that fair value cannot be reliably measured. The liability's carrying amount is only a fallback measure, and face value is irrelevant to the initial measurement.

  1. AAt the fair value of the equity instruments issuedCorrect
  2. BAt the carrying amount of the financial liability extinguished
  3. CAt the face value of the shares issued
  4. DAt the book value per share of the existing equity

Explanation

Appendix D requires equity instruments issued to a creditor to extinguish a financial liability to be measured at their fair value when first recognised, unless that fair value cannot be reliably measured. Carrying amount of the liability is used only as a fallback when the fair value of the shares cannot be reliably measured.

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