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A Ltd. issues warrants to its EXISTING shareholders entitling them to purchase additional ordinary shares of A Ltd. at ₹150/share. Each warrant gives a fixed entitlement to a fixed number of shares for a fixed price. Under Ind AS 109/Ind AS 32, the warrant is:
AHybrid — split between equity and liability components in proportion to in-the-money/out-of-the-money value
BOutside Ind AS 109 because it concerns A Ltd.'s own equity
CAn EQUITY INSTRUMENT — a derivative that will be settled by exchange of a fixed amount of cash for a fixed number of own equity instruments
DA derivative financial liability — because warrants always involve future cash settlement
Answer & Solution
Correct answer: C. An EQUITY INSTRUMENT — a derivative that will be settled by exchange of a fixed amount of cash for a fixed number of own equity instruments
The warrant's value varies with A Ltd.'s share price (underlying), requires no initial net investment by the issuer, and settles at a future date — it meets the derivative definition. A derivative settled by exchange of FIXED CASH for a FIXED NUMBER of own equity instruments satisfies condition (B)(ii) of Ind AS 32.16's equity definition. Equity classification — the fixed-for-fixed test is met.
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