Skip to content

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

Sundaram Textiles Ltd holds 30% of the equity shares of an associate, Kaveri Dyes Ltd, and accounts for the investment under the equity method in accordance with Ind AS 28. Sundaram also holds an ordinary listed bond issued by HDFC Bank Ltd. Which of the following is correct regarding the scope of Ind AS 109 for these two items?

Ind AS 109 applies to the listed bank bond but not to the 30% associate interest. Interests in associates accounted for under Ind AS 28 are scoped out of Ind AS 109, whereas an ordinary debt investment in a bank is a financial instrument covered by the Standard.

  1. AInd AS 109 applies to the interest in Kaveri Dyes but not to the bank bond
  2. BInd AS 109 applies to neither the interest in Kaveri Dyes nor the bank bond
  3. CInd AS 109 applies to the bank bond but not to the interest in Kaveri Dyes, which is accounted for under Ind AS 28Correct
  4. DInd AS 109 applies to both items because both are financial assets

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 equity-accounted interest in Kaveri Dyes is therefore outside its scope. The bank bond is an ordinary financial asset and is inside the scope. Option 4 is wrong because it ignores the scope exclusion.

Did you get it right without looking?

One question tells you little. A timed set on Financial Instruments: Scope and Definitions shows your real accuracy, how long you take and where you lose marks.

Practise Financial Instruments: Scope and DefinitionsFree diagnostic mock

More Financial Instruments: Scope and Definitions questions