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Modify the above: contingent consideration is to be settled by a VARIABLE number of shares with TOTAL FV equal to ₹40 lakh after one year. Initial FV ₹25 lakh. On settlement, the actual liability is ₹40 lakh. Subsequent accounting:
AClassify as financial liability (Ind AS 32 — variable number of own shares fails fixed-for-fixed); remeasure each period in P&L; on settlement P&L loss of ₹40-25 = ₹15 lakh; issue 1,60,000 shares at premium of ₹15 over ₹10 face value
BClassify as equity but remeasure in OCI
CTreat the ₹15 lakh as goodwill adjustment
DAccount within equity; no P&L impact
Answer & Solution
Correct answer: A. Classify as financial liability (Ind AS 32 — variable number of own shares fails fixed-for-fixed); remeasure each period in P&L; on settlement P&L loss of ₹40-25 = ₹15 lakh; issue 1,60,000 shares at premium of ₹15 over ₹10 face value
Variable shares delivering a fixed cash-equivalent value fails Ind AS 32's fixed-for-fixed. Hence financial liability classification → FV through P&L → loss ₹15 lakh on settlement; issue 1,60,000 shares (40 lakh / ₹25) with ₹15 premium each over ₹10 face.
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