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CMA Final · Corporate Financial Reporting · Accounting of Financial Instruments

Under Ind AS 109 (Appendix D), a company issues its own equity shares to a creditor to extinguish part of a financial liability. The fair value of the equity instruments can be reliably measured. How should the equity instruments be initially measured?

The equity instruments are measured at their own fair value at the date the liability is extinguished. Only when that fair value cannot be reliably measured does the entity use the fair value of the liability extinguished. Face value or carrying amount of the liability are not the measurement basis.

  1. AAt the fair value of the equity instruments issuedCorrect
  2. BAt the face value of the shares issued
  3. CAt the fair value of the liability extinguished, even though the share fair value is reliable
  4. DAt the carrying amount of the liability extinguished

Explanation

Appendix D states that equity instruments issued to a creditor to extinguish all or part of a financial liability are measured initially at their fair value, unless that fair value cannot be reliably measured. Only if it cannot be reliably measured do we use the fair value of the liability extinguished. Face value and carrying amount are not the prescribed bases.

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