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

Tara Infra Ltd owes Rs 80 lakh to a lender, Bharat Finance Ltd. Under a renegotiation, Tara will issue shares to Bharat to extinguish the liability. Which situation is excluded from the scope of Appendix D of Ind AS 109 on extinguishing financial liabilities with equity instruments?

The situation where Bharat is a direct shareholder acting in its capacity as an existing shareholder is excluded from Appendix D. The Appendix does not apply when the creditor is a direct or indirect shareholder acting as such, while partial extinguishment and quoted shares remain covered.

  1. ABharat is an unrelated lender and the shares are issued only after renegotiating the terms of the liability
  2. BBharat is a direct shareholder of Tara and is acting in its capacity as an existing shareholder in the transactionCorrect
  3. CBharat is an unrelated lender and the issue extinguishes only part of the liability
  4. DBharat is an unrelated lender and the shares issued have a quoted market price

Explanation

Appendix D applies to renegotiated terms where equity instruments are issued to a creditor to extinguish all or part of a liability. It does not apply where the creditor is a direct or indirect shareholder acting in its capacity as such. Partial extinguishment and quoted shares remain in scope.

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