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

Under Ind AS 109, Appendix D on extinguishing financial liabilities with equity instruments, which statement is correct?

The issue of an entity's equity instruments to a creditor to extinguish all or part of a financial liability is consideration paid, and the liability or part of it is removed from the balance sheet only when it is extinguished. The Appendix does not address the creditor's accounting.

  1. AIt addresses the accounting by the creditor receiving the equity
  2. BThe issue of equity instruments to a creditor is consideration paid, and the liability is removed only when it is extinguishedCorrect
  3. CThe equity instruments are always measured at the carrying amount of the liability extinguished
  4. DAny difference between the carrying amount and the equity measured is taken directly to equity

Explanation

The Appendix treats the issue of equity to a creditor as consideration paid and permits removal of a liability only when extinguished. It does not address the creditor's accounting, and measurement is at the fair value of equity where reliable.

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