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CA Final · Financial Reporting · Financial Instruments: Scope and Definitions

Shivalik Textiles Ltd holds 70% of the equity shares of its subsidiary, Ganga Yarns Ltd, and prepares consolidated financial statements. In its separate financial statements it accounts for the investment in Ganga Yarns at cost under Ind AS 27. Shivalik also holds 2% of the shares of an unrelated listed company, Kaveri Motors Ltd. Which statement about the scope of Ind AS 109 is correct?

Ind AS 109 does not apply to Shivalik's interest in its subsidiary accounted for under Ind AS 27, because such interests are excluded from scope. It does apply to the 2% investment in the unrelated listed company, which is an ordinary financial asset for the holder.

  1. AInd AS 109 applies to the investment in Ganga Yarns because it is an equity instrument
  2. BInd AS 109 does not apply to the interest in Ganga Yarns accounted for under Ind AS 27, but it applies to the 2% holding in Kaveri MotorsCorrect
  3. CInd AS 109 does not apply to either investment because both are equity instruments of other entities
  4. DInd AS 109 applies to both investments because Shivalik is the holder in each case

Explanation

Ind AS 109 excludes interests in subsidiaries, associates and joint ventures accounted for under Ind AS 110, Ind AS 27 or Ind AS 28. The 2% holding in Kaveri Motors is not such an interest, so the holder applies Ind AS 109 to it. Treating equity instruments of other entities as outside scope confuses the holder's position with the issuer's exclusion.

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