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A Ltd. defaults on an INR 10 lakh bank loan. The bank agrees to a one-time settlement of INR 13 lakh, against a contractually compounded amount of INR 12,54,400 — INR 45,600 higher than what would have been due without default. Under Ind AS 32, the rescheduled arrangement:
AFalls outside Ind AS 32 because it is a settlement arrangement rather than a borrowing
BGives rise to a financial liability because A Ltd. has a contractual obligation to deliver cash under conditions that are unfavourable
CIs treated as a government grant since it reflects relief from contractual default
DDoes not give rise to a financial liability because the original loan was already extinguished on default
Answer & Solution
Correct answer: B. Gives rise to a financial liability because A Ltd. has a contractual obligation to deliver cash under conditions that are unfavourable
Even after default, A Ltd. has a fresh contractual obligation to pay INR 13 lakh — and paying INR 45,600 in excess of the compounded amount means settling on terms unfavourable to A Ltd. Both limbs of the financial-liability definition (contractual obligation; potentially unfavourable conditions) are satisfied. Rescheduling does not move the instrument outside Ind AS 32; rather, it triggers a derecognition/modification analysis under Ind AS 109.
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