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Under Ind AS 109, a debt instrument with a HOLDER-PUT or ISSUER-PREPAY option meets the SPPI test only if the prepayment amount:
AMust include a substantial premium over par to compensate the holder
BMust equal the original face value of the instrument exactly
CMust equal the current fair value of the instrument at prepayment date
DSubstantially represents unpaid principal + interest on the principal outstanding, possibly including reasonable additional compensation for early termination
Answer & Solution
Correct answer: D. Substantially represents unpaid principal + interest on the principal outstanding, possibly including reasonable additional compensation for early termination
Para B4.1.11(b) — prepayment options preserve SPPI when the prepayment amount substantially represents unpaid principal + interest, plus reasonable additional compensation for early termination (typically a small premium). Prepayment at FAIR VALUE (not at amortised principal) generally FAILS SPPI. After amendments, negative-compensation prepayments may still qualify for amortised cost/FVOCI if FV of the prepayment feature is insignificant on initial recognition.
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