Page 23 - 23. COMPILER QB - IND AS 109_32

3. Net investment hedging
● An investor in a non-integral operation is exposed to changes in the carrying amount of the net assets
of the foreign operation (the net investment) arising from the translation of those assets into the

reporting currency of the investor.

Q14 (March 19 – 8 Marks)
1. QA Ltd. issued 10,00,000 of 8% Long Term bond-A Series of Rs. 1 each on 1st April, 2016. The bond

tenure is 3 years. Interest is payable annually on 1st April each year. The investors expect an effective
interest rate on the loan at 10%. QA Ltd. wants you to suggest the suitable accounting entries for the
issue of these bonds as per applicable Ind AS. Consider the discounting factor 3 years, 10% discounting
factor is 0.751315 and 3 years cumulative discounting factor is 2.48685.
(i) What is the principal value of the bond at the initial recognition at the time of issue of bond as per
applicable Ind AS?

(ii) What is the present value of the interest payment to be recognised as part of the sale price of the bond
as per applicable Ind AS?
(iii) What are the proceeds of the sale of the bond to be recognized at the time of initial recognition as per
applicable Ind AS?

(iv) What is the accounting entry to be passed at the time of accounting for payment of interest for the
first year?

2. QA Ltd. has also issued 10,00,000 of 8% Long Term Bond-B Series of Rs. 1 each on 1st April, 2016. The
bond tenure is 3 years. Interest is payable annually on 1st April each year. However, the bond holders of
this series are entitled to convert the bonds to shares of Rs. 1 each on the date of maturity, instead of

receiving the principal repayment. Interest rate on the similar bond without the conversion option is 10%.
QA Ltd. has requested you to suggest the following for this type of instrument:
a) What is the entry to be passed at the date of issuance of the bond as per applicable Ind AS?
b) What is the entry to be passed at the date of conversion of the bond as per applicable Ind AS?

SOLUTION
1.
i. Option (C): Rs. 7,51,315

ii. Option (C): Rs. 1,98,948
iii. Option (B): Rs. 9,50,263
iv. Bond Interest Expenses A/c Dr. Rs. 95,026
To Discount on Bond A/s Rs. 15,026
To Cash/Bank A/c Rs. 80,000

Workings for the above
Since the Effective interest rate on the loan is 10% while the Bond has been issued at 8%, the financial
liability will be recognized at fair value determined as follows:
Calculation of initial recognition amount of 8% Long term Loan Bond A Series

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