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

Ranvir Textiles Ltd. renegotiated a term loan from a bank. The loan's carrying amount is Rs 50 lakh. The company issued equity shares to the bank to extinguish the entire loan. Under Appendix D of Ind AS 109, how should the equity instruments be initially measured, assuming their fair value can be reliably measured?

Equity instruments issued to a creditor to extinguish a financial liability are initially measured at their own fair value, provided it can be reliably measured. The liability's carrying amount is not the primary basis; it is used only if the equity fair value is not reliably measurable.

  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 company's net assets

Explanation

Appendix D requires equity instruments issued to a creditor to extinguish a liability to be measured at their fair value, 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 equity cannot be reliably measured, so option B is wrong.

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