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

Under Ind AS 109 Appendix D, which statement correctly describes the treatment of an entity's own equity instruments issued to a creditor to settle part of a financial liability?

Equity issued to a creditor is consideration paid, and the financial liability, or the relevant part, is removed from the balance sheet only when it is extinguished. The Appendix covers the debtor's accounting and does not address the creditor.

  1. AThey are not consideration paid, so the liability remains on the balance sheet
  2. BThey are consideration paid, and the liability or the relevant part is removed only when it is extinguishedCorrect
  3. CThe Appendix governs the creditor's accounting for the shares received
  4. DThe liability is removed at the date the renegotiation begins, before extinguishment

Explanation

Issue of equity to a creditor is consideration paid under paragraph 3.3.3 of Ind AS 109. A liability or part of it is removed when, and only when, it is extinguished. The Appendix does not address creditor accounting.

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