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CMA Final · Corporate Financial Reporting · Accounting of Financial Instruments

Tulsi Agro Ltd. settles a liability with carrying amount ₹60,00,000 by issuing 1,50,000 shares. On the date of agreement the share price was ₹30, but on the date the liability was actually extinguished (shares issued) it was ₹36. The fair value is reliably measurable. Which statement is correct?

Equity is recognised at ₹54,00,000 and a gain of ₹6,00,000 goes to profit or loss. The shares are measured at fair value on the date the liability is extinguished (₹36 x 1,50,000), not at the earlier agreement-date price.

  1. AEquity is recognised at ₹54,00,000 and gain is ₹6,00,000Correct
  2. BEquity is recognised at ₹45,00,000 and gain is ₹15,00,000
  3. CEquity is recognised at ₹60,00,000 and no gain arises
  4. DEquity is recognised at ₹54,00,000 and loss is ₹6,00,000

Explanation

Equity instruments are measured at the date the liability is extinguished. Fair value = 1,50,000 x 36 = ₹54,00,000. Gain = 60,00,000 - 54,00,000 = ₹6,00,000 in profit or loss. Using the agreement-date price of ₹30 gives ₹45,00,000 and gain of ₹15,00,000, which is the wrong date.

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