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CA Final · Financial Reporting · Financial Instruments: Scope and Definitions

Vindhya Foods Ltd has a Rs 40 crore loan from Deccan Finance Ltd, an unrelated lender. Under renegotiated terms, Vindhya issues equity shares to Deccan to extinguish part of the loan; this was not provided in the original loan terms. Separately, Vindhya owes Rs 10 crore to Arjun Holdings Ltd, which is Vindhya's promoter and shareholder. Arjun converts the debt into shares in its capacity as an existing shareholder. Which statement is correct regarding Appendix D (Extinguishing Financial Liabilities with Equity Instruments)?

Appendix D applies to the Deccan Finance transaction, an unrelated creditor receiving shares under renegotiated terms, but not to Arjun Holdings, whose debt is converted while it acts as an existing shareholder, which is an excluded situation.

  1. AAppendix D applies to both transactions because both extinguish liabilities with equity
  2. BAppendix D applies to the Deccan transaction but not to the Arjun transactionCorrect
  3. CAppendix D applies to the Arjun transaction only, since the shareholder is a related party
  4. DAppendix D applies to neither transaction because equity issues are outside Ind AS 109

Explanation

Appendix D covers renegotiations where equity is issued to a creditor to extinguish all or part of a liability. It is not applied where the creditor is also a shareholder acting in that capacity, or where settlement in shares is in the original terms. Deccan is an unrelated creditor with no such original term, so Appendix D applies; Arjun acts as shareholder, so it is excluded.

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