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

Yamuna Infra Ltd's lender, Sagar Finance Ltd, is also a 12% shareholder of Yamuna Infra. The loan terms are renegotiated and Yamuna Infra issues shares to Sagar Finance to extinguish the loan. Sagar Finance is acting in its capacity as an existing shareholder in giving this concession. Which is correct regarding Appendix D?

Appendix D is not applied. The creditor is an existing shareholder and is acting in that capacity, which is a specific exclusion. The text sets no minimum shareholding threshold, so the 12% holding does not change the outcome.

  1. AAppendix D is not applied, because the creditor is a shareholder acting in that capacityCorrect
  2. BAppendix D is applied because the creditor is an external lender
  3. CAppendix D is applied only if shareholding exceeds 50%
  4. DAppendix D is applied because the shareholding is below 20%

Explanation

The Appendix is not applied where the creditor is a direct or indirect shareholder and acts in its capacity as an existing shareholder. No percentage threshold is given in the text, so the 12% holding does not matter. The facts state that Sagar Finance acts as a shareholder, so the exclusion applies.

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