CA Final · Financial Reporting · Classification and Measurement of Financial Assets and Financial Liabilities

Sahyadri Infra Ltd issued a financial guarantee contract to a bank for a loan taken by its supplier. The guarantee is not designated at fair value through profit or loss and the transfer-of-asset provisions do not apply. Under Ind AS 109, how should Sahyadri Infra subsequently measure the guarantee after initial recognition?

An issuer measures a financial guarantee contract after initial recognition at the higher of two amounts: the Section 5.5 loss allowance, and the amount initially recognised less, where appropriate, cumulative income recognised under Ind AS 115. This applies unless the contract is at FVTPL or the transfer provisions apply.

1. AAt the higher of the loss allowance under Section 5.5 and the amount initially recognised less, where appropriate, cumulative income recognised under Ind AS 115Correct
2. BAt the lower of the loss allowance under Section 5.5 and the amount initially recognised less cumulative income recognised
3. CAt amortised cost using the effective interest method on the premium received
4. DAt fair value through other comprehensive income with recycling on expiry