Page 33 - 23. COMPILER QB - IND AS 109_32

Shares in Cox Ltd (Rs. 1,75,000 + Rs. 12,500) = Rs. 1,87,500 (Balance Sheet)

Q20 (May 20 – 4 Marks)
D Ltd. issues preference shares to G Ltd. for a consideration of Rs. 10 lakhs. The holder has an option to
convert these preference shares to a fixed number of equity instruments of the issuer anytime up to a period

of 3 years. If the option is not exercised by the holder, the preference shares are redeemed at the end of 3
years. The preference shares carry a coupon of RBI base rate plus 1% p.a.
The prevailing market rate for similar preference shares, without the conversion feature or issuer’s redemption
option, is RBI base rate plus 4% p.a. On the date of contract, RBI base rate is 9% p.a.
Calculate the value of the liability and equity components.

SOLUTION
The values of the liability and equity components are calculated as follows:
Present value of principal payable at the end of 3 years (Rs. 10 lakhs discounted at 13% for 3 years) = Rs.

6,93,050
Present value of interest payable in arrears for 3 years (Rs. 100,000 discounted at 13% for each of 3 years) =
Rs. 2,36,115
Paragraph AG31 of Ind AS 32 states that a common form of compound financial instruments is a debt

instrument with an embedded conversion option, such as a bond convertible into ordinary shares of the issuer,
and without any other embedded derivatives features.
The liability component = Present value of principal + Present value of Interest
= Rs. 6,93,050 + Rs.2,36,115 = Rs. 9,29,165
Equity Component = Rs. 10,00,000 –Rs. 9,29,165 = Rs. 70,835

Q21 (March 21 – 6 Marks)
Mercury Ltd. has sold goods to Mars Ltd. at a consideration of Rs. 10 lakhs, the receipt of which receivable

in three equal installments of Rs. 3,33,333 over a two years period (receipts on 1st April, 20X1, 31st March,
20X2 and 31st March, 20X3).
The company is offering a discount of 5 % (i.e. Rs. 50,000) if payment is made in full at the time of sale.
The sale agreement reflects an implicit interest rate of 5.36% p.a.
The total consideration to be received from such sale is at Rs. 10 Lakhs and hence, the management has

recognised the revenue from sale of goods for Rs. 10 lakhs. Further, the management is of the view that
there is no difference in this aspect between Indian GAAP and Ind AS.
Analyse whether the above accounting treatment made by the accountant is in compliance of the Ind AS. If
not, advise the correct treatment along with working for the same. Also show its presentation in the
company’s profit & loss and balance sheet.

SOLUTION
The revenue from sale of goods shall be recognised at the fair value of the consideration received or
receivable. The fair value of the consideration is determined by discounting all future receipts using an

imputed rate of interest where the receipt is deferred beyond normal credit terms. The difference between
the fair value and the nominal amount of the consideration is recognised as interest revenue.
The fair value of consideration (cash price equivalent) of the sale of goods is calculated as follows:

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