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Thread: 20 - Indian Accounting Standard (Ind AS) 32 - Earlier Accounting standard - (31) - Financial Instruments: Presentation

  1. #1
    IND-AS
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    Thumbs up 20 - Indian Accounting Standard (Ind AS) 32 - Earlier Accounting standard - (31) - Financial Instruments: Presentation

    Indian Accounting Standard (Ind AS) 32 - Earlier Accounting standard - (31)

    (Corresponding to IAS 32)

    Financial Instruments: Presentation


    (This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)


  2. #2
    IND-AS
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    Thumbs up Objective of Indian Accounting Standard (Ind AS) 32 - Earlier Accounting standard - (31) - Financial Instruments: Presentation

    Objective of Indian Accounting Standard (Ind AS) 32 - Earlier Accounting standard - (31)


    Financial Instruments: Presentation


    Objective

    1. [Refer to Appendix 1]

    2. The objective of this Standard is to establish principles for presenting financial instruments as liabilities or equity and for offsetting financial assets and financial liabilities. It applies to the classification of financial instruments, from the perspective of the issuer, into financial assets, financial liabilities and equity instruments; the classification of related interest, dividends, losses and gains; and the circumstances in which financial assets and financial liabilities should be offset.

    3. The principles in this Standard complement the principles for recognising and measuring financial assets and financial liabilities in Ind AS 39 Financial Instruments: Recognition and Measurement , and for disclosing information about them in Ind AS 107 Financial Instruments: Disclosures.


  3. #3
    IND-AS
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    Thumbs up Scope of Indian Accounting Standard (Ind AS) 32 - Earlier Accounting standard - (31) - Financial Instruments: Presentation

    Scope of Indian Accounting Standard (Ind AS) 32 - Earlier Accounting standard - (31)


    Financial Instruments: Presentation


    Scope

    4. This Standard shall be applied by all entities to all types of financial instruments except:

    (a) those interests in subsidiaries, associates or joint ventures that are accounted for in accordance with Ind AS 27 Consolidated and Separate Financial Statements, Ind AS 28 Investments in Associates or Ind AS 31 Interests in Joint Ventures. However, in some cases, Ind AS 27, Ind AS 28 or Ind AS 31 permits an entity to account for an interest in a subsidiary, associate or joint venture using Ind AS 39; in those cases, entities shall apply the requirements of this Standard. Entities shall also apply this Standard to all derivatives linked to interests in subsidiaries, associates or joint ventures.

    (b) employers’ rights and obligations under employee benefit plans, to which Ind AS 19 Employee Benefits applies.
    (c) [Refer to Appendix 1]
    (d) insurance contracts as defined in Ind AS 104 Insurance Contracts.
    However, this Standard applies to derivatives that are embedded in insurance contracts if Ind AS 39 requires the entity to account for them separately. Moreover, an issuer shall apply this Standard to
    financial guarantee contracts if the issuer applies Ind AS 39 in recognising and measuring the contracts, but shall apply Ind AS 104 if the issuer elects, in accordance with paragraph 4(d) of Ind AS 104, to apply Ind AS 104 in recognising and measuring them.

    (e) financial instruments that are within the scope of Ind AS 104 because they contain a discretionary participation feature. The issuer of these instruments is exempt from applying to these features paragraphs 15 – 32 and AG25–AG35 of this Standard regarding the distinction between financial liabilities and equity instruments. However, these instruments are subject to all other requirements of this Standard. Furthermore, this Standard applies to derivatives that are embedded in these instruments (see Ind AS 39).

    (f) financial instruments, contracts and obligations under share -based payment transactions to which Ind AS 102 Share-based Payment applies, except for

    (i) contracts within the scope of paragraphs 8 –10 of this Standard, to which this Standard applies,
    (ii) paragraphs 33 and 34 of this Standard, which shall be applied to treasury shares purchased, sold, issued or cancelled in connection with employee share option plans, employee share purchase plans, and all other share -based payment arrangements.

    5 - 7. [Refer to Appendix 1]

    8. This Standard shall be applied to those contracts to buy or sell a non - financial item that can be settled net in cash or another financial instrument, or by exchanging financial instruments, as if the contracts were financial instruments, with the exception of contracts that were entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the entity’s expected purchase, sale or usage requirements.

    9. There are various ways in which a contract to buy or sell a non -financial item can be settled net in cash or another financial instrument or by exchanging financial instruments. These include:

    (a) when the terms of the contract permit either party to settle it net in cash or another financial instrument or by exchanging financial instruments;
    (b) when the ability to settle net in cash or another financial instrument, or by exchanging financial instruments, is not explicit in the terms of the contract, but the entity has a practice of settling similar contracts net in cash or another financial instrument, or by exchanging financial instruments
    (whether with the counterparty, by entering into offsetting contracts or by selling the contract before its exercise or lapse);

    (c) when, for similar contracts, the entity has a practice of taking delivery of the underlying and selling it within a short period after delivery for the purpose of generating a profit from short -term fluctuations in price or dealer’s margin; and
    (d) when the non-financial item that is the subject of the contract is readily convertible to cash.

    A contract to which (b) or (c) applies is not entered into for the purpose of the receipt or delivery of the non-financial item in accordance with the entity’s expected purchase, sale or usage requirements, and, accordingly, is within the scope of this Standard. Other contracts to which paragraph 8 applies are evaluated to determine whether they were entered into and continue to be held for the purpose of the receipt or delivery of the non -financial item in accordance with the entity’s expected purchase, sale or usage requirement, and accordingly, whether they are within the scope of this Standard.

    10. A written option to buy or sell a non -financial item that can be settled net in cash or another financial instrument, or by exchanging financial instruments, in accordance with paragraph 9(a) or (d) is within the scope of this Standard. Such a contract cannot be entered into for the purpose of the receipt or delivery of the non-financial item in accordance with the entity’s expected purchase, sale or usage requirements.


  4. #4
    IND-AS
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    Thumbs up Definitions of Indian Accounting Standard (Ind AS) 32 - Earlier Accounting standard - (31) - Financial Instruments: Presentation

    Definitions of Indian Accounting Standard (Ind AS) 32 - Earlier Accounting standard - (31)


    Financial Instruments: Presentation


    Definitions (see also paragraphs AG3–AG23)

    11. The following terms are used in this Standard with the meanings specified:

    A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

    A financial asset is any asset that is:

    (a) cash;
    (b) an equity instrument of another entity;
    (c) a contractual right:

    (i) to receive cash or another financial asset from another entity; or
    (ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity; or

    (d) a contract that will or may be settled in the entity’s own equity instruments and is:

    (i) a non-derivative for which the entity is or may be obliged to receive a variable number of the entity’s own equity instruments; or
    (ii) a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. For this purpose the entity’s own equity instruments do not include puttable financial instruments classified as equity instruments in accordance with paragraphs 16A and 16B, instruments that impose on the entity an obligation to deliver to another party a prorata share of the net assets of the entity only on liquidation and are classified as equity instruments in accordance with paragraphs 16C and 16D, or instruments that are contracts for the future receipt or delivery of the entity’s own equity instruments.

    A financial liability is any liability that is:

    (a) a contractual obligation :

    (i) to deliver cash or another financial asset to another entity; or
    (ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity; or

    (b) a contract that will or may be settled in the entity’s own equity instruments and is:

    (i) a non-derivative for which the entity is or may be obliged to deliver a variable number of the entity’s own equity instruments; or

    (ii) a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. For this purpose, rights, options or warrants to acquire a fixed number of the entity’s own equity instruments for a fixed amount of any currency are equity instruments if the entity offers the rights, options or warrants prorata to all of its existing owners of the same class of its own non-derivative equity instruments. Apart from the aforesaid, the equity conversion option embedded in a convertible bond denominated in foreign currency to acquire a fixed number of the entity’s own equity instruments is an equity instrument if the exercise price is fixed in any currency. Also for these purposes the entity’s own equity instruments do not include puttable financial instruments that are classified as equity instruments in accordance with paragraphs 16A and 16B, instruments that impose on the entity an obligation to deliver to another party a prorata share of the net assets of the entity only on liquidation and are classified as equity instruments in accordance with paragraphs 16C and 16D, or instruments that are contracts for the future receipt or delivery of the entity’s own equity instruments.

    As an exception, an instrument that meets the definition of a financial liability is classified as an equity instrument if it has all the features and meets the conditions in paragraphs 16A and 16B or paragraphs 16C and 16D.

    An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

    Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

    A puttable instrument is a financial instrument that gives the holder the right to put the instrument back to the issuer for cash or another financial asset or is automatically put back to the issuer on the occurrence of an uncertain future event or the death or retirement of the instrument holder.

    12. The following terms are defined in paragraph 9 of Ind AS 39 and are used in this Standard with the meaning specified in Ind AS 39.


    • amortised cost of a financial asset or financial liability


    • available-for-sale financial assets


    • derecognition


    • derivative


    • effective interest method


    • financial asset or financial liability at fair value through profit or loss


    • financial guarantee contract


    • firm commitment


    • forecast transaction


    • hedge effectiveness


    • hedged item


    • hedging instrument


    • held-to-maturity investments


    • loans and receivables


    • regular way purchase or sale


    • transaction costs.


    13. In this Standard, ‘contract’ and ‘contractual’ refer to an agreement between two or more parties that has clear economic consequences that the parties have little, if any, discretion to avoid, usually because the agreement is enforceable by law. Contracts, and thus financial instruments, may take a variety of forms and need not be in writing.

    14. In this Standard, ‘entity’ includes individuals, partnerships, incorporated bodies, trusts and government agencies.


  5. #5
    IND-AS
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    Thumbs up Presentation - Liabilities and equity of Indian Accounting Standard (Ind AS) 32 - Earlier Accounting standard - (31)

    Presentation - Liabilities and equity of Indian Accounting Standard (Ind AS) 32 - Earlier Accounting standard - (31)


    Financial Instruments: Presentation


    Presentation

    Liabilities and equity (see also paragraphs AG13 –AG14J and AG25–AG29A)

    15. The issuer of a financial instrument shall classify the instrument, or its component parts, on initial recognition as a financial liability, a financial asset or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability, a financial asset and an equity instrument.

    16. When an issuer applies the definitions in paragraph 11 to determine whether a financial instrument is an equity instrument rather than a financial liability, the instrument is an equity instrument if, and only if, both conditions (a) and (b) below are met.

    (a) The instrument includes no contractual obligation:

    (i) to deliver cash or another financial asset to another entity; or
    (ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the issuer.

    (b) If the instrument will or may be settled in the issuer’s own equity instruments, it is:

    (i) a non-derivative that includes no contractual obligation for the issuer to deliver a variable number of its own equity instruments; or
    (ii) a derivative that will be settled only by the issuer exchanging a fixed amount of cash or another financial asset for a fixed number of its own equity instruments. For this purpose, rights, options or warrants to acquire a fixed number of the entity’s own equity instruments for a fixed amount of any currency are equity instruments if the entity offers the rights, options or warrants prorata to all of its existing owners of the same class of its own non-derivative equity instruments. Apart from the aforesaid, the equity conversion option embedded in a convertible bond denominated in foreign currency to acquire a fixed number of the entity’s own equity instruments is an equity instrument if the exercise price is fixed in any currency. Also, for these purposes the issuer’s own equity instruments do not include instruments that have all the features and meet the conditions described in paragraphs 16A and 16B or paragraphs 16C and 16D, or instruments that are contracts for the future receipt or delivery o f the issuer’s own equity instruments.

    A contractual obligation, including one arising from a derivative financial instrument, that will or may result in the future receipt or delivery of the issuer’s own equity instruments, but does not meet conditions (a) and (b) above, is not an equity instrument. As an exception, an instrument that meets the definition of a financial liability is classified as an equity instrument if it has all the features and meets the conditions in paragraphs 16A and 16B or paragraphs 16C and 16D.


  6. #6
    IND-AS
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    Thumbs up Puttable instruments of Indian Accounting Standard (Ind AS) 32 - Earlier Accounting standard - (31) - Financial Instruments: Presentation

    Puttable instruments of Indian Accounting Standard (Ind AS) 32 - Earlier Accounting standard - (31)

    Financial Instruments: Presentation

    Presentation


    Puttable instruments

    16A. A puttable financial instrument includes a contractual obligation for the issuer to repurchase or redeem that instrument for cash or another financial asset on exercise of the put. As an exception to the definition of a financial liability, an instrument that includes such an obligation is classified as an equity instrument if it has all the following features:

    (a) It entitles the holder to a prorata share of the entity’s net assets in the event of the entity’s liquidation. The entity’s net assets are those assets that remain after deducting all other claims on its assets. A prorata share is determined by:
    (i) dividing the entity’s net assets on liquidation into units of equal amount; and
    (ii) multiplying that amount by the number of the units held by the financial instrument holder.

    (b) The instrument is in the class of instruments that is subordinate to all other classes of instruments. To be in such a class the instrument:

    (i) has no priority over other claims to the assets of the entity on liquidation, and
    (ii) does not need to be converted into another instrument before it is inthe class of instruments that is subordinate to all other classes of instruments.

    (c) All financial instruments in the class of instruments that is subordinate to all other classes of instruments have identical features. For example, they must all be puttable, and the formula or other method used to calculate the repurchase or redemption price is the same for all instruments in that class.

    (d) Apart from the contractual obligation for the issuer to repurchase or redeem the instrument for cash or another financial asset, the instrument does not include any contractual obligation to deliver cash or another financial asset to another entity, or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity, and it is not a contract that will or may be settled in the entity’s own equity instruments as set out in subparagraph (b) of the definition of a financial liability.

    (e) The total expected cash flows attributable to the instrument over the life of the instrument are based substantially on the profit or loss, the change in the recognised net assets or the change in the fair value of the recognised and unrecognised net assets of the entity over the life of the instrument (excluding any effects of the instrument).

    16B. For an instrument to be classified as an equity instrument, in addition to the instrument having all the above features, the issuer must have no other financial instrument or contract that has:

    (a) total cash flows based substantially on the profit or loss, the change in the recognised net assets or the change in the fair value of the recognised and unrecognised net assets of the entity (excluding any effects of such instrument or contract) and
    (b) the effect of substantially restricting or fixing the residual return to the puttable instrument holders.

    For the purposes of applying this condition, the entity shall not consider non - financial contracts with a holder of an instrument described in paragraph 16A that have contractual terms and conditions that are similar to the contractual terms and conditions of an equivalent contract that might occur between a noninstrument holder and the issuing entity. If the entity cannot determine that this condition is met, it shall not classify the puttable instrument as an equity instrument.


  7. #7
    IND-AS
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    Thumbs up Presentation of Indian Accounting Standard (Ind AS) 32 - Earlier Accounting standard - (31) - Financial Instruments: Presentation

    Presentation of Indian Accounting Standard (Ind AS) 32 - Earlier Accounting standard - (31)

    Financial Instruments: Presentation

    Presentation


    Instruments, or components of instruments, that impose on the entity an obligation to deliver to another party a prorata share of the net assets of the entity only on liquidation

    16C. Some financial instruments include a contractual obligation for the issuing entity to deliver to another entity a prorata share of its net assets only on liquidation. The obligation arises because liquidation either is certain to occur and outside the control of the entity (for example, a limited life entity) or is uncertain to occur but is at the option of the instrument holder. As a n exception to the definition of a financial liability, an instrument that includes such an obligation is classified as an equity instrument if it has all the following features:

    (a) It entitles the holder to a prorata share of the entity’s net assets i n the event of the entity’s liquidation. The entity’s net assets are those assets that remain after deducting all other claims on its assets. A prorata share is determined by:

    (i) dividing the net assets of the entity on liquidation into units of equal amount; and
    (ii) multiplying that amount by the number of the units held by the financial instrument holder.

    (b) The instrument is in the class of instruments that is subordinate to all other classes of instruments. To be in such a class the instrument:

    (i) has no priority over other claims to the assets of the entity on liquidation, and
    (ii) does not need to be converted into another instrument before it is in the class of instruments that is subordinate to all other classes of instruments.

    (c) All financial instruments in the class of instruments that is subordinate to all other classes of instruments must have an identical contractual obligation for the issuing entity to deliver a prorata share of its net assets on liquidation.

    16D. For an instrument to be classified as an equity instrument, in addition to the instrument having all the above features, the issuer must have no other financial instrument or contract that has:

    (a) total cash flows based substantially on the profit or loss, the change in the recognised net assets or the change in the fair value of the recognised and unrecognised net assets of the entity (excluding any effects of such instrument or contract) and
    (b) the effect of substantially restricting or fixing the residual return to the instrument holders.

    For the purposes of applying this condition, the entity shall not consider non - financial contracts with a holder of an instrument described in paragraph 16C that have contractual terms and conditions that are similar to the contractual terms and conditions of an equivalent contract that might occur between a non - instrument holder and the issuing entity. If the entity cannot determine that this condition is met, it shall not classify the instrument as an equity instrument.

    Last edited by IND-AS; 08-02-2011 at 11:59 AM.

  8. #8
    IND-AS
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    Thumbs up Presentation of Indian Accounting Standard (Ind AS) 32 - Earlier Accounting standard - (31) - Financial Instruments: Presentation

    Presentation of Indian Accounting Standard (Ind AS) 32 - Earlier Accounting standard - (31)

    Financial Instruments: Presentation

    Presentation


    Reclassification of puttable instruments and instruments that impose on the entity an obligation to deliver to another party a prorata share of the net assets of the entity only on liquidation

    16E. An entity shall classify a financial instrument as an equity instrument in accordance with paragraphs 16A and 16B or paragraphs 16C and 16D from the date when the instrument has all the features and meets the conditions set out in those paragraphs. An entity shall reclassify a financial instrument from the date when the instrument ceases to have all the features or meet all the conditions set out in those paragraphs. For example, if an entity redeems all its issued non - puttable instruments and any puttable instruments that remain outstanding have all the features and meet all the conditions in paragraphs 16A and 16B, the entity shall reclassify the puttable instruments as equity instruments from the date when it redeems the non-puttable instruments.

    16F. An entity shall account as follows for the reclassification of an instrument in accordance with paragraph 16E:

    (a) It shall reclassify an equity instrument as a financial liability from the date when the instrument ceases to have all the features or meet the conditions in paragraphs 16A and 16B or paragraphs 16C and 16D. The financial liability shall be measured at the instrument’s fair value at the date of reclassification. The entity shall recognise in equity any difference between the carrying value of the equity instrument and the fair value of the financial liability at the date of reclassification.

    (b) It shall reclassify a financial liability as equity from the date when the instrument has all the features and meets the conditions set out in paragraphs 16A and 16B or paragraphs 16C and 16D. An equity instrument shall be measured at the carrying value of the financial liability at the date of reclassification.


  9. #9
    IND-AS
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    Thumbs up No contractual obligation to deliver cash or another financial asset of Indian Accounting Standard (Ind AS) 32 - Earlier Accounting standard - (31)

    No contractual obligation to deliver cash or another financial asset of Indian Accounting Standard (Ind AS) 32 - Earlier Accounting standard - (31)

    Financial Instruments: Presentation

    Presentation


    No contractual obligation to deliver cash or another financial asset
    (paragraph 16(a))


    17. With the exception of the circumstances described in paragraphs 16A and 16B or paragraphs 16C and 16D, a critical feature in differentiating a financial liability from an equity instrument is the existence of a contractual obligation of one party to the financial instrument (the issuer) either to deliver cash or another financial asset to the other party (the holder) or to exchange financial assets or financial liabilities with the holder under conditions that are potentially unfavourable to the issuer. Although the holder of an equity instrument may be entitled to receive a prorata share of any dividends or other distributions of equity, the issuer does not have a contractual obligation to make such distributions because it cannot be required to deliver cash or another financial asset to another party.

    18. The substance of a financial instrument, rather than its legal form, governs its classification in the entity’s balance sheet. Substance and legal form are commonly consistent, but not always. Some financial instruments take the legal form of equity but are liabilities in substance and others may combine features associated with equity instruments and features associated with financial liabilities. For example:

    (a) a preference share that provides for mandatory redemption by the issuer for a fixed or determinable amount at a fixed or determinable future date, or gives the holder the right to require the issuer to redeem the instrument at or after a particular date for a fixed or determinable amount, is a financial liability.

    (b) a financial instrument that gives the hold er the right to put it back to the issuer for cash or another financial asset (a ‘ puttable instrument’) is a financial liability, except for those instruments classified as equity instruments in accordance with paragraphs 16A and 16B or paragraphs 16C and 16D. The financial instrument is a financial liability even when the amount of cash or other financial assets is determined on the basis of an index or other item that has the potential to increase or decrease. The existence of an option for the holder to put the instrument back to the issuer for cash or another financial asset means that the puttable instrument meets the definition of a financial liability, except for those instruments classified as equity instruments in accordance with paragraphs 16A and 16B or paragraphs 16C and 16D. For example, open -ended mutual funds, unit trusts, partnerships and some co -operative entities may provide their unitholders or members with a right to redeem their interests in the issuer at any time for cash, which results in the unitholders’ or members’ interests being classified as financial liabilities, except for those instruments classified as equity instruments in accordance with paragraphs 16A and 16B or paragraphs 16C and 16D. However, classification as a financial liability does not preclude the use of descriptors such as ‘net asset value attributable to unitholders’ and ‘change in net asset value attributable to unitholders’ in the financial statements of an entity that has no contributed equity (such as some mutual funds and unit trusts, see Illustrative Example 7) or the use of additional disclosure to show that total members’ interests comprise items such as reserves that meet the definition of equity and puttable instruments that do not (see Illustrative Example 8).

    19. If an entity does not have an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation, the obligation meets the definition of a financial liability, except for those instruments classified as equity instruments in accordance with paragraphs 16A and 16B or paragraphs 16C and 16D. For example:

    (a) a restriction on the ability of an entity to satisfy a contractual obligation, such as lack of access to foreign currency or the need to obtain approval for payment from a regulatory authority, does not negate the entity’s contractual obligation or the holder’s contractual right under the instrument.

    (b) a contractual obligation that is conditional on a counterparty exercising its right to redeem is a financial liability because the entity does not have the unconditional right to avoid delivering cash or another financial asset.

    20. A financial instrument that does not explicitly establish a contractual obligation to deliver cash or another financial asset may establish an obligation indirectly through its terms and conditions. For example:

    (a) a financial instrument may contain a non -financial obligation that must be settled if, and only if, the entity fails to make distributions or to redeem the instrument. If the entity can avoid a transfer of cash or another financial asset only by settling the non-financial obligation, the financial instrument is a financial liability.

    (b) a financial instrument is a financial liability if it provides that on settlement the entity will deliver either:
    (i) cash or another financial asset; or
    (ii) its own shares whose value is determined to exceed substantially the value of the cash or other financial asset.

    Although the entity does not have an explicit contractual obligation to deliver cash or another financial asset, the value of the share settlement alternative is such that the entity will settle in cash. In any event, the holder has in substance been guaranteed receipt of an amount that is at least equal to the cash settlement option (see paragraph 21).


  10. #10
    IND-AS
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    Thumbs up Settlement in the entity’s own equity instruments of Indian Accounting Standard (Ind AS) 32 - Earlier Accounting standard - (31)

    Settlement in the entity’s own equity instruments of Indian Accounting Standard (Ind AS) 32 - Earlier Accounting standard - (31)

    Financial Instruments: Presentation

    Presentation


    Settlement in the entity’s own equity instruments (paragraph 16(b))


    21. A contract is not an equity instrument solely because it may result in the receipt or delivery of the entity’s own equity instruments. An entity may have a contractual right or obligation to receive or deliver a number of its own shares or other equity instruments that varies so that the fair value of the entity’s own equity instruments to be received or delivered equals the amount of the contractual right or obligation. Such a contractual right or obligation may be for a fixed amount or an amount that fluctuates in part or in full in response to changes in a variable other than the market price of the entity’s own equity instruments (eg an interest rate, a commodity price or a financial instrument price). Two examples are (a) a contract to deliver as many of the entity’s own equity instruments as are equal in value to Rs 100, and (b) a contract to deliver as many of the entity’s own equity instruments as are equal in value to the value of 100 ounces of gold. Such a contract is a financial liability of the entity even though the entity must or can settle it by delivering its own equity instruments. It is not an equity instrument because the entity uses a variable number of its own equity instruments as a means to settle the contract. Accordingly, the contract does not evidence a residual interest in the entity’s assets after deducting all of its liabilities.

    22. Except as stated in paragraph 22A, a contract that will be settled by the entity (receiving or) delivering a fixed number of its own equity instruments in exchange for a fixed amount of cash or another financial asset is an equity instrument. For example, an issued share option that gives the counterparty a right to buy a fixed number of the entity’s shares for a fixed price or for a fixed stated principal amount of a bond is an equity instrument. Changes in the fair value of a contract arising from variations in market interest rates that do not affect the amount of cash or other financial assets to be paid or received, or the number of equity instruments to be received or delivered, on settlement of the contract do not preclude the contract from being an equity instrument. Any consideration received (such as the premium received for a written option or warrant on the entity’s own shares) is added directly to equity. Any consideration paid (such as the premium paid for a purchased option) is deducted directly from equity. Changes in the fair value of an equity instrument are not recognised in the financial statements.

    22A. If the entity’s own equity instruments to be received, or delivered, by the entity upon settlement of a contract are puttable financial instruments with all the features and meeting the conditions described in paragraphs 16A and 16B, or instruments that impose on the entity an obligation to deliver to another party a prorata share of the net assets of the entity only on liquidation with all the features and meeting the conditions described in paragraphs 16C and 16D, the contract is a financial asset or a financial liability. This includes a contract that will be settled by the entity receiving or delivering a fixed number of such instruments in exchange for a fixed amount of cash or another financial asset.

    23. With the exception of the circumstances described in paragraphs 16A and 16B or paragraphs 16C and 16D, a contract that contains an obligation for an entity to purchase its own equity instruments for cash or another financial asset gives rise to a financial liability for the present value of the redemption amount (for example, for the present value of the forward repurchase price, option exercise price or other redemption amount). This is the case even if the contract itself is an equity instrument. One example is an entity’s obligation under a forward contract to purchase its own equity instruments for cash. When the financial liability is recognised initially under Ind AS 39, its fair value (the present value of the redemption amount) is reclassified from equity. Subsequently, the financial liability is measured in accordance with Ind AS 39. If the contract expires without delivery, the carrying amount of the financial liability is reclassified to equity. An entity’s contractual obligation to purchase its own equity instruments gives rise to a financial liability for the present value of the
    redemption amount even if the obligation to purchase is conditional on the counterparty exercising a right to redeem (eg a written put option that gives the counterparty the right to sell an entity’s own equity instruments to the entity for a fixed price).

    24. A contract that will be settled by the entity delivering or receiving a fixed number of its own equity instruments in exchange for a variable amount of cash or another financial asset is a financial asset or financial liability. An example is a contract for the entity to deliver 100 of its own equity instruments in return for an amount of cash calculated to equal the value of 100 ounces of gold.


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