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

Sahyadri Textiles Ltd owes Rs 50 lakh to a supplier, and the carrying amount of this financial liability is Rs 50 lakh. The supplier agrees to accept 4 lakh equity shares of Sahyadri in full settlement. The shares have a reliably measurable fair value of Rs 11 per share on the date of settlement. How should Sahyadri account for the settlement under Ind AS 109?

Sahyadri measures the shares issued at their fair value of Rs 44 lakh, because the fair value is reliably measurable. The Rs 6 lakh difference from the Rs 50 lakh carrying amount of the liability is recognised as a gain in profit or loss on extinguishment.

  1. AMeasure the equity at Rs 44 lakh and recognise a gain of Rs 6 lakh in profit or lossCorrect
  2. BMeasure the equity at Rs 50 lakh and recognise no gain or loss
  3. CMeasure the equity at Rs 44 lakh and recognise the Rs 6 lakh difference directly in other equity
  4. DMeasure the equity at face value and recognise the balance as securities premium with no gain or loss

Explanation

Equity instruments issued to extinguish a liability are measured at their fair value when it can be reliably measured: 4,00,000 x Rs 11 = Rs 44 lakh. The difference from the carrying amount (50 - 44 = Rs 6 lakh) is a gain in profit or loss. Option B uses the liability's carrying amount, which is allowed only when the equity's fair value cannot be reliably measured.

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