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CA Final · Financial Reporting · Financial Instruments: Equity and Financial Liabilities

Under Appendix D of Ind AS 109, an entity issues its equity instruments to a creditor to extinguish a financial liability. Which statement is correct?

Issuing equity to a creditor is consideration paid for extinguishing a financial liability, and the liability is derecognised only when it is actually extinguished. The Appendix covers only the debtor's accounting, not the creditor's.

  1. AThe issue is consideration paid, and the liability is removed only when it is extinguishedCorrect
  2. BThe issue is a non-monetary exchange outside Ind AS 109, so the liability stays on the balance sheet
  3. CThe Appendix also prescribes the accounting by the creditor
  4. DThe liability is removed on the date negotiations begin

Explanation

Appendix D states the issue of equity instruments to a creditor is consideration paid under paragraph 3.3.3, and a liability is removed from the balance sheet when, and only when, it is extinguished. The Appendix does not address the creditor's accounting, so option C is wrong.

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