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

Sahyadri Foods Ltd owes Rs 50 lakh to a supplier on a term loan. The supplier agrees to accept 4,00,000 equity shares of the company in full settlement. The shares have a reliably measurable fair value of Rs 11 per share. Under the accounting principles of Ind AS 109 Appendix D, at what amount are the equity instruments initially measured?

The shares are measured at Rs 44,00,000, their fair value (4,00,000 shares at Rs 11). Ind AS 109 Appendix D requires equity issued to a creditor to be measured at fair value, unless that fair value cannot be reliably measured. Carrying amount of the liability is only a fallback.

  1. ARs 40,00,000, being the face value of the shares at Rs 10 each
  2. BRs 44,00,000, being the fair value of the equity instruments issuedCorrect
  3. CRs 50,00,000, being the carrying amount of the liability extinguished
  4. DRs 6,00,000, being the difference between the liability and the shares' fair value

Explanation

Equity instruments issued to a creditor to extinguish a liability are initially measured at their fair value when it can be reliably measured. 4,00,000 x Rs 11 = Rs 44,00,000. Using the liability carrying amount is wrong because that basis applies only when the fair value of the equity cannot be reliably measured.

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