Home › CA Final › financialreporting › financialinstruments › An entity enters a contract to deliver a VARIABL…
An entity enters a contract to deliver a VARIABLE number of its own equity shares in exchange for a fixed amount of cash. The contract is classified as:
AA financial liability, because it fails the "fixed-for-fixed" test
BAn equity instrument, because settlement is in own equity instruments
COutside the scope of Ind AS 32 because it involves own equity
DA derivative that must be measured at fair value through OCI
Answer & Solution
Correct answer: A. A financial liability, because it fails the "fixed-for-fixed" test
Contracts settled in own equity are equity instruments only if it is a "fixed-for-fixed" exchange — a fixed number of shares for a fixed amount of cash (or another financial asset). A variable number of shares fails the test and the contract is therefore classified as a financial liability.
Related questions
A Ltd. defaults on an INR 10 lakh bank loan. The bank agrees to a one-time settlement of IB Ltd. issues 10% cumulative non-redeemable preference shares. The cumulative dividend canA Ltd. holds a contractual right to exchange a financial asset for another financial assetA puttable financial instrument — one that the holder can require the issuer to redeem forY Ltd. issues a foreign-currency convertible bond. Variability of the conversion ratio thaA Ltd. enters a forward contract to repurchase a fixed number of its own equity shares forUnder Ind AS, a financial guarantee contract is:X Ltd. issues irredeemable preference shares at face value ₹10 plus premium ₹90, carrying