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

Under Ind AS 109 Appendix D, a debtor renegotiates a financial liability and issues equity to the creditor. Which statement is correct?

The liability is removed from the balance sheet only when it is extinguished, and the equity issued is treated as consideration paid. The appendix does not cover the creditor's accounting, and it excludes Ind AS 113 paragraph 47 when valuing liabilities with a demand feature.

  1. AThe liability is removed from the balance sheet only when it is extinguished, and the equity issued is consideration paidCorrect
  2. BThe liability is removed on signing the renegotiation, irrespective of extinguishment
  3. CThe appendix prescribes the accounting of the creditor for the shares received
  4. DFor a liability with a demand feature, paragraph 47 of Ind AS 113 is applied to measure its fair value

Explanation

The appendix says issue of equity is consideration paid under paragraph 3.3.3 and the liability is removed when, and only when, it is extinguished. It does not address creditor accounting, and for demand-feature liabilities paragraph 47 of Ind AS 113 is not applied.

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