Home › CA Final › financialreporting › financialinstruments › A Ltd. enters a forward contract to repurchase a…
A Ltd. enters a forward contract to repurchase a fixed number of its own equity shares for a fixed amount of cash in 12 months' time. Under Ind AS 32, this contract:
AHas no accounting consequences until the contract is actually executed
BGives rise to a financial liability at the present value of the redemption amount, recognised immediately with a corresponding debit to equity
CIs a derivative measured at fair value through OCI until settlement
DIs only an equity instrument because it is settled in own equity
Answer & Solution
Correct answer: B. Gives rise to a financial liability at the present value of the redemption amount, recognised immediately with a corresponding debit to equity
Although the forward is settled in own equity and meets fixed-for-fixed, the OBLIGATION TO PAY CASH on settlement creates a present financial liability. Para 23 of Ind AS 32 requires the issuer to record a liability at the present value of the redemption amount on inception, with a corresponding reduction in equity.
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 thaUnder Ind AS, a financial guarantee contract is:X Ltd. issues irredeemable preference shares at face value ₹10 plus premium ₹90, carrying An entity enters a contract to deliver a VARIABLE number of its own equity shares in excha