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CA Final · Financial Reporting · Recognition and Derecognition of Financial Instruments

Sundaram Textiles Ltd buys listed government bonds in a regular way purchase that it will classify at amortised cost. The trade date is 28 March for Rs 10,00,000. Settlement is on 2 April, and the entity applies settlement date accounting. The fair value of the bonds on 31 March, its reporting date, is Rs 10,05,000. What is recognised in the financial statements at 31 March?

Nothing is recognised at 31 March. With settlement date accounting the bonds are recognised only when received on 2 April. For an amortised cost asset, fair value changes between trade date and settlement date are not recognised, so the Rs 5,000 increase is ignored.

  1. ABonds Rs 10,05,000 and a gain of Rs 5,000 in profit or loss
  2. BBonds Rs 10,00,000 with a corresponding liability of Rs 10,00,000
  3. CNeither the bonds nor any change in their value is recognisedCorrect
  4. DA gain of Rs 5,000 in other comprehensive income

Explanation

Under settlement date accounting the asset is recognised only on the day it is received, which is 2 April. For assets measured at amortised cost, the change in fair value between trade date and settlement date is not recognised. So nothing is recorded at 31 March. The profit or loss option applies only to assets measured at FVTPL.

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