51 Issues on Financial Instruments

About this ebook

This book contains compilation of issues that required application of financial instruments standards, Ind AS 32, Ind 107 and Ind AS 109 in issue repository of https://gaapadvisors.com.

Each issue has been identified with issue id in issue repository. The solutions to some of the issues discussed herein are not the same as in the issue repository. The solution to the issues has been updated based on standards amended till 31 March 2023. The issues have been submitted by registrants on https://gaapadvisors.com . I have edited the issues submitted for grammatical errors and unclear or vague language to the extent possible. The advantage of such a compilation is that it contains issues faced while applying Ind AS. The book is aimed as a reference book. Therefore, response to each issue has been discussed with complete conceptual discussion regardless of the same being repeated. Repetition is the mother of learning. The repetition of the conceptual discussions will help in learning the concepts in depth. Apart from discussing the application of requirements of Ind AS 32, Ind AS 107 and Ind AS 109, I have also provided my views on the following areas where diverse practices are followed:

1. When an interest in subsidiary can be regarded as investment in subsidiary to be measured at cost

2. Accounting for financial guarantees

3. Accounting for obligations to acquire non-controlling interests

4. Accounting for interest free loans or loans at concessional rate from shareholders

The book does not stop after discussion on 51 issues. I have discussed as a Case Study my views on the guidelines issued by Finance Department, Government of Gujarat, for dividend distribution and capital restructuring of state public sector undertakings vide GR No: FD/OTH/e-file/2023/1504/A-BPE dated 24 April 2023 as a Case Study. The discussion includes accounting implications from the perspective of issuer, that is, the State controlled Public Sector Undertakings to whom the guidelines apply and from the perspective of the investor in equity shares of those State controlled Public Sector Undertakings.

The views expressed are my personal views and the same are not binding on the reader. The reader is cautioned to seek the help of an expert before acting or refraining from any action based on the solution to issues given in this compilation.

Title of the Issue dealt with in this eBook

1. Dividend on Cumulative Convertible Preference Shares

2. Measurement of Investment in Preference Shares of Subsidiary

3. Measurement of Investment in Convertible Preference Shares

4. Classification and Measurement on Transition date of Investment in G-Sec that may be sold

5. Disclosure of Covenant breach

6. Measurement of Zero-Coupon Bonds by Issuer

7. Classification of Convertible Loan by Holder

8. Classification of Convertible Loan by Issuer

9. Measurement of Convertible Loan by Issuer

10. Determination of Effective Interest Rate

11. Measurement of Traded Certificate of Deposits and Commercial Papers

12. Interest free Rental Deposit

13. Accounting for Modification in Terms of Preference Shares

14. Accounting for Issue of 0% Redeemable Preference Shares

15. Dividends on Investment in Subsidiary

16. Expected Credit Loss on Trade Receivables

17. Processing Fees on Floating Rate Loan

18. Accounting for 10% Cumulative Redeemable Preference Shares

19. Accounting for DSA Commission for Loan sourcing

20. Accounting treatment of Gain on Buyback

21. Agreement by Debtor to provide Services in lieu of Cash

22. Accounting for Insurance Claim Receivable

23. Interest free / Concessional Loans

24. Interest free Loans

25. Classification and Modification of Non-cumulative Redeemable Preference Shares

26. Classification of Non-cumulative Redeemable Preference Shares

27. Classification of Units issued by Alternative Investment Fund

28. Equity Investments as Fair Value through Other Comprehensive Income

29. Discount Rate for Cumulative Redeemable Preference Shares

30. Accounting for Financial Guarantee by Issuer

31. Embedded Derivative in Non-financial Liability

32. Employee Loan at Concessional Rate

33. Factoring of Trade Receivables

34. Contract to Acquire Non-controlling Interests

35. Classification of Preference Shares Redeemable at the Option of the Issuer

36. Classification of Interest free loans from Directors

37. Financial Guarantee that are expected to be invoked

38. Classification of Partners’ Capital in Partnership Firm

39. Classification of 0% Compulsorily Convertible Preference Shares

40. Classification of Variable Rate Loans

41. Accounting for Options to acquire Equity Shares

42. Expected Credit Losses on Trade Receivables

43. Modification of Terms of Preference Shares

44. Guarantee for an undefined period

45. Guarantee issued by Subsidiary for Loan taken by Parent

46. Classification of Investment in Prepayable Non-convertible Debenture

47. Sales Tax Deferment Scheme

48. Capitalisation of Hedging Costs of Forward Cover

49. Accounting for Convertible Loan

50. Forward contract on Foreign Currency Payables

51. Loan given to US Subsidiary

Case Study:

Guidelines for Dividend Distribution and Capital Restructuring of State Public Sector Undertakings by Finance Department, Government of Gujarat vide GR No: FD/OTH/e-file/2023/1504/A-BPE dated 24 April 2023